FWS Cx@ VC? R"$2Fn o#aL5/kurw5hvV8"Z1ʤ8@5kyWF-㘶xrg*أ~&;= 5i޸x/nU!;\8/mDﲰ5feV)yP R)6^(bc]cR\$m3:l )@A9fSvjϥ#zg)@`MkI,O5*ZBȽY%`@0:bS;vin6̈́m5h{yXVikNZ&p~.wW&RY%[ R;ax.,w$_}5چ 2LDf* w5hx^ ~Sf!e.%ݬSeAЎyeYkF 1n'ـ.s%)-P]_Uڤ{Hl,Pm3@9L&!1MH<%Sn>[[yہ5byQv-^c lKl5l5b{yXV,^5ef[/7jآᰶKMg];k[ +`aQr-WҬd5I,*b i%5r˴XmSPɀJ*6LA8F̍`32bx8't4PՌ5bu]J r̠ <2qu<)-2mk7][\ax(=seLL76uW#Ȼ=A#5fvX2/]: N3bl/lJ⚽Ҫڴ`u 5a~wk ۪~u @1Y Q2&%@ l R@+* 5iy7ȯn7V[ `Verdana .LMTadgilnoprtuyUp ̧ ?N|G6+<7@C=m*7H4 ^Rp ̧ ?N|G6+<7@C=m*7H4 ^Vpc ̧ ?N|G6+<7@C=m*7H4 ^%x 4 Q/j@@@@@@@@@@Р@?@? main1!lx Tng),e8g ɇ6fc>U  9U<  ɚ9eo  ɇ6fc>]t  ɲ6fge<  ɚ9ewL   ɚ9e  ɚ9eyx}V8>1D*AA<"q^<'Ѯdհk'IMENU OF TOPICS

@ ozZ2@(

MARKET STRUCTURE

@ o72@(

SHORT-RUN BEHAVIOUR

z? Arial o#]g2(

Click on one of the following topics

F?e!* `k [[[Ll< Pc@XCP%I@Qep`@  p(x ;s}hpNS'; D!#+++HRx 5.T4hJ()ymDP8Q(~}sT%5U`gp333f M\Gޠ=ɱ^4ڎyĀFU`gp33f M\Gޠ=ɰԬ6ڞyJ# d8;FU`gp33f M\Gޠ=ɰԬ6ڞyJ# d8;We!* `k [[[Ll< Pc@XCP%I@Qep`@  p/&=Continue

4 oS20(

MARKETS

IN

ACTION

MONOPOLY

{ oR2@(

LONG-RUN BEHAVIOUR

rJ  ol[2@(

REVENUE BEHAVIOUR

  !oR2@(

PRICE DISCRIMINATION

 !r "o9\2@(

REGULATED MONOPOLY

!"J` #o2@(

ANIMATED REVIEW

"# @    !"?#$xAxTA%{)8v-$% %+@α0? &Arial ;'o-0&(Click here to view Figure 1 '?(z`+%UAy#G 8[^$h9 p 2G#n(? )Arial >*,2(

Key Concepts: Price Searcher, Barriers to Entry

Read the notes on the left of this screen, then click on the Figure 1 link below.

* l ?+e!* `k [[[j;WPc@XCP%I@Qep`@  p萱N@(xhAp ) ܞAt'sh{sCD!#+++HRx =|*xJ()ymDP8Q(~}_*iܹK,UD`gp333f J!rP xa^u(qȷ./3vE U6sicp#ͧy?DT-UD`gp333 VVl,R Q ޠ¼Pݑn]8^ f싚xGSoO sicT.UD`gp333 J!us]Cut7jێ{< G Uw Ԉ:|XvK3/&+,-./)(X=INTRODUCTION

In this tutorial we will examine how Product A is supplied by a firm in a market structure or industry environment called Monopoly.

MARKET STRUCTURE

The features of Monopoly are:

1. Single Seller: The monopoly firm is the sole supplier of a product with no close substitutes.

2. Price Searcher: The firm's demand curve is the same as the industry demand curve. This means that the firm's demand curve is downward sloping. As the firm increases output, the price will decline. The firm must search to find the best price.

3. Barriers to Entry: In every monopoly, obstacles exist which prevent other new firms from entering the industry. Figure 1 provides examples.

 1#*2y݄mE5õ/$9\E:߇Bŀ!2 3_~a[2&(

Product

Markets

"3? 4PVxͱ0 ǵrH츕8R pʑ(+(O8,3;/b/YꪔzVEi^t:vxnKlSSaq i@3g͋hm<9SȪ TyNˋ*-6dH?"_B)@,4,QݢB}(Y%cdJ)I|_s,ϱ<s,ϱ<qv%ϝ"m3*F^HV$Ļncuapf0b(#2S&bygLDET"q'iְU8ΨFgp"d`r̰,"H*l. ,s$hU;T:,ZN)&wb_c(*S -'ZދU @=Ll^=(8a>;[^ݝo?`CvM)?C]vn3 aMQ m>0X;`쥃K7cv58rm؁`A@A7@T ͵YtNLt2K &8@ !"$%&?9 9(@n:  :+Yd  ;;o-0&(Click here to view Figure 2 ;U<z`+%UAy#G 8[%ay#G 8[%ly#G 8[ < /)(X=Key Concepts: Monopolist's Demand and Marginal Revenue Curve.

Read the notes on the left of this screen, then click on the Figure 2 link below.

= l  H>w}2(

REVENUE BEHAVIOUR

Monopoly Firm's Marginal Revenue

Since, for a monopoly firm, price and quantity demanded are inversely related (price searcher), the firm's marginal revenue will be below the firm's price, for each quantity level.

Graphically, the marginal revenue curve is downward sloping and is below the firm's demand curve.

One way to understand why marginal revenue (MR) is below price (P), is to realize that when the monopolist sells an additional unit at the new lower price, this new lower price must also apply to all previous units (which were originally sold at a higher price).

In Figure 2 we illustrate this relation between marginal revenue and price for a monopoly firm.

># ?o# 2333(

Application Question 1

Why is the price of admission

to a "new release movie" so

much more than the price paid

to view the same movie one

year later?

?H{  <@o0333(Click here for the solution. @H Aw0)(After you have completed all the slides and figures in this tutorial re-visit this page and see if you can answer Application Question 1 below. A zBJFIFHHC       C  S  !1"A2Qaq#3Rr%4BCDbs$&5SUct9 !Q"1ABRaq#23bSr4 ?MPPPPGP3W4N~RFiy՚]^ n U_P]39R=k_57n#u&Ym~"yvר4":NZ%dT)w}Qv]d6uP@qL$n8V(kPa[^aPLWZ9{mژuq]u׷*‡^2 ʅLʝ8'fRҖ]c+=}9cK_Ԏ?Hi_6귑ZbZc'Imrf4毮86;?Ol.ϡeoҝF,臻q羚:Vg=~RB):.%g9Et:|zWۓA.MGo=YG1|cuMRHU=irJ&yn$\]=[y_Oy#ȑr v4NOBhO{БdxUbJ~%g51J*"[X-S& d0YsxcBsW*fty9]NuӊV{{B}1-rxvueŖb6xˮߡ=\xP=3[X*}~i/v@p]/P2`zL@p^2zLoWGQmMBj\"֜ vR}%cxMIi?n&Y;騺[+-@;f߬ltnBw+ù?\z)ieO Ur&]!mZLnrVS.03"ج\<,BjִM"pbي;JSTZΖeEF(bl?Y Ά7_nHgn؁?আ41 Pnih`;{Ѫnc?C6 Ds3,436|>!_ܿjhcfrٱۿg} ` 7š'4zRd} K-3ϨkV0b&ߤY%R&FAq2%{OɛLhKm~*aߴ`mT&0RWPcI%֑^G;Uk+>uw_63\\ʮ}]^953=|B>0RN= \Z%X6fz:<8/ pSeŷaY=W[4+m\H5f-Ûʹ yR_qk8@Y1^'ڣy~K4/MTMF^}3-ˎ4/q,^s@UL4Eʚl>~k.^sK^kFqo6ygp*wON!y ]Xd6ĽOW{'4:rKdBw%E;p ֧nr%hi:mRCpu͓)z3 ?XYtڤ2:GPT)bW^ >IO,E7^g~*Ԙ2k 2h'Cm|\R<<,lCPCeRyޑH8NRU2gx#629) o^`}>_mGg(qE16WO ,ܯP]X[QuW&+eIWZ€o>*e^Ҿ IO뭡-->ua.%G> s1w iK\'3-uc!}MW.Z p-q Sn)~9+)Nm\~S3g"C\I8xgRrzWnFлwo}o'Xa;gyPឃ<Ԕ0y2\Nk}V1nڮ(_}AK߹qҹFwSmY {15ۣqhl%IkR{mZnsaJTzDw[OiKcUN9!M3' NH5ɋUSO JU}Y[!.D}ɥ)RR`ʤ^Z֌S:w]lp߇e ;Pꙻ%mԻڗ2drdշYmIrܓrg\╺YV _pOqU8FN>!NwٶGs`4~W\x <1Fvw])~^;01v߱Jc8J-}OkDu7̨*̈_E:PǦJ%mH#2Y(I吣˟:AA_1)Tއ7~g1I]Ų d:R'5<2}|,dcMK`F@!N^,a'S֣` u޻6g9%AmIN+F&N\ag[_S{bZ޻l='jqzCV]ž2.zeiB*k·<+J-K+uiWgu ^zs +h`CuL8}B,!<ڱfz}|ϕ7W+͍Ef/-}O qbil8eQZ:€ȻI^Ƒhe?pX.UةG*U>3Wԏۭ}/?2-g05Xk6w]oƜ('*kS>oQfù \oCQlD]SWaIB@Ikk[eCS4'+ǭ|J (h۟g,W+vvKkQo:(Ђ -ԦR}aϕqNMvz+߮sGT d:SWLT)F}El,95qӲmbXHFQ=:6G[˷ZN?!sb{wAْ/j:t :=MWѺG}n))DVrBB||JjsFtWc)\& *!)@J̄!85,!+EY TZAR?Χy9˭wiԺ馤#y*iIHttΧѫqXko+2;\֫&[ F;ylcH V%UziNǢWX9`W|'}QQ7^BT-X ev)A+~SzDV.'g7ol2\bnBHZAVp\ġ*ŧ;4՞ y%((j(z‚L7I){m0U*7˭޽vn^ܣl1PPv!B-MgIv8N LeoK=b>fWл2j/^,=-2<'v߉]R2XmR@*bGǜ-Y)B&u4iRFq٭(> * 24(J , ZRA@/:K{7u[U%{XJѕGtGhzU&E|j:Be4V#RфI)**΀zi8JT'ڮ?+GwS/Sp~sy}V6HgU~6h{ =I}gf{ĔH.n0i'ʶQ_RweҚSiM$T%!]D aܒYdxy*tB`$ ۍU #Y)8QM˔u\m6$9j/߃ZeRan¦*bKAU^C;j}(F:t8١877%qe%5ŤwjPʥ\*CIYRr9d,zIiWU%v{2Puc @(= bG5jwLe%!Ilܷcjk[t)IEmչqR ˍw-xNzTCv}ߢ# /$q]QB@| g8@h_^__F9I̕%I'qUPZ%ɥ*}Zd( obD$2o~ח)  nN=P?@d7IjbJԇ ŐT>xymFB֗#;Jyn8$Ɠ|"⣶qͣ$#^{F?xO8- +KKG AHRhѕ&FKHNԟeO@1{V v{LۊlSV~ޕ/ZEc2}V~! f(;d;'!F:GB9&ikIb>< ܄n1^_7(r4MiXK8kCDmivn "lNd;i@܇#lYIJVҸj*H FQwLnjc ڎVTF(7)+l]!I.:IjI<Ү\bJɑj NEYVٓn jFA< 1m[ ܾm$uJ~,N*)S+O|4ewʒJRv_.YG^Tʷ<6]qW 9DzeFm$6JyPn_Є./}Iip .d,JW@zCLVj"1+Y}8[*'mh  Ee 8}.6%!Ch f㡵m;R>"V>?x ƙ6CZ-)'*TuR@ʏ~l"e(AK9 ME CgM\x͈ aN+ēWQi_&cCʌL~:s2<e$T0`a)YQBp'(G}I8tn#2%j`mR9gː@ILH\%5 #MT$͸![ZĔ*7m'nNX)m0d@O>].vVȨ .cJIiL!I:XGV;|ERKa%)JNʀCX"A}3dcK^iqTG$Pfѵ}'l,PH ˌhJW,?k:0e]|O@h:cI[+Le)SH ThV4)90fpސڙCFRi(F;p*!iϗZ{s@|u]:\@}h-ԅ#r%j*QR!Q=h bٞes2d8u!IݎxO >V>LiBS UHZ6 aNݸt<(@@@@@D4Ş :sⴄaCVq@CZ4s-k~I--B[m>t@@@@@@@@@@@@@@ٿ6CrsoxנA@AB@Nl ϩvQ#]C@ ?!DxAxTA%xY`pDE E+Yd< dFC2(

Key Concepts: Short-run , Four Short-run Questions, Three Typical Short-run Situations

Read the notes on the left of this screen, then proceed to the next slide.

F l  7Gw ح2(

SHORT-RUN BEHAVIOUR

MONOPOLY

Here we examine the short-run behaviour - output, price and profit behaviour- of a monopoly firm.

In the short-run each firm is faced with fixed costs (fixed inputs) and variable costs (variable inputs) . In maximizing profits, Firm X must compare its revenues with its costs and answer the following 4 short-run (SR) questions:

Q1: Should the firm operate?

Q2: If yes, what is the best quantity level?

Q3: What is the best price?

Q4: What is the best dollar profit?

Answering these questions typically leads to 1 of 3 short-run situations:

Sit 1: Firm operates at a profit

Sit 2: Firm operates at a loss

Sit 3: Firm shutsdown in the short run

Proceed to the next slide.

G# KHo[2333(

Application Question 2

In order to purchase a

brand name franchise gas

station, you agreed to a

contract that forces you

to purchase all of your gas

from the same supplier -

oil refiner A. What will this

exlusive contract do to

your wholesale price of gas?

HH{H <Io0333(Click here for the solution. IH Jw0)(After you have completed all the slides and figures in this tutorial re-visit this page and see if you can answer Application Question 2 below. J ?Kx}l"y``m1fxg0xX80`cvf8CPHQ.."]_NFIMtU)궊*TFJMFt ook;?/< =1='O$W^nGO?I: .|oM&ߟxկ|kԿ+{ｄUT.􋏾Y/bGd[wLO_;|_^]p^5FZ??ZhR7eTkRუwG?Zl >}_/p޽ ~/kg;?OO?hwGGG Ono|f?˧o?v;3bG>9z//~oD"VW_ݲ}G{|ё㏏~SwWG^Jlp5Ix-,K /^@og[e%Ty+U6 6yU*k`i4m0_?w;zƷj||5eZpVomHmylJ@3Qx%4p)OA1`[6 aP(l}=K[[gr!OǓy*yL}T_ʩt>WUZq0u}fkot˼iV?KಡYsXP'[[=^9ْ{<ð%C: =gK\ϸGo>R[Ir?_a[qs0\ @DEҭrar׭F=e=zјR$"*'Is`oҌ䶶9fʣOHQ\ 0RFJu9He \IǭKLEW2n)+{`0pmAf=(18"8 ‘d)E%:)Qc.X Y6lbAIQ]X*]-e:)k<(ʐC*U(E[*`+A9}~Qig>xMqNWFm9hUV)2ICRj ϖLHI+岥%-AlCD$i)"̦ "AL)!%pQJ%d*!L) .D))2I +xӆx-h NEװțIJ9\eKu2Z*sSTp tUr GUSB)]ײgʗHj)!-4ϧd fC@E1MX/c,{Kz v~郕!U]~`JKwfqıgYV6Eh4qa mSxߘ1H`>GUˬa0cS}KX\D%:g0ڊD@RdX̓쓌MM\^,+~PTxkhChl26>{6#!dq!{v.^THYd`RismxD+֢19{_n޼_K0$fZ%+E=Yܘ\L4>d>TCӷśᒙIQ<.ZRIM\H$cڧE;C\Lěu94Wq2شM+h6WDNbxr2~h_w,n΂pNE:B7vEIxh&+vX]%lr8TĶ))Wɩ)XlO:Eb~8i~t68Wqrgxv*ЮmTy\:lH|& u$,DXMfBHcȔNjS,#=qI&@6;@X ^'/e)݌` /G'ckHCDJbq'pvÄ}rJZLLN7S@@6Gc9g23O$|Ytn^Zp:qlGY1Ec^-]!TAuB p(yFhr $L3mLmEӭXB+M#jjL{@փӞxDxs5BLL!w`H(c,Fv )7y g[1'ZsI H6re|&R;+LAQW嚝}%EтC$|~ҭeyV5 `~_1hL<.o% a? gіiI Bs&0 yMQD_ASĪLx&Mq.1pR]ih=) ,=@Z1runxv>Пp)$  > e0/>5ĎS < >w )B0BڒriCf nDxHVeJC*u:m` e2l.B{%J+ՓmrܻWl E[ }cQ6ـ:^L0P4PH=+iQP1E{\Oӛ-˴ ph4JB9y[L1Z|c#r\JznZPx~AjwV86mEMԄ2B*Tg̃asF>Gߟ[ϱ>i!dq W!E<@+] 37POBڝn#99\!\%<)E4M|+ѷFn5/H`puOalPS8ֵU]EZI'P `&4I/Ao!M"9UrwGh$Wtj/z8k":SJ⼚tF鹋jߦEU>fƑ;vg4 ˙$kd& |2@Q(WMmTEtQb%|`GNB1i`~Њ1]K [k%L9R,靈IiDB op+~~Scv XNH=vZ0s aIp[¾𓹰idc^4~z4QDԌPt:Qk#!)p\8i/~2W1(?,mWəeRݴ:]sX`,/Ns}r~M` UHepS.XPOb@Ӣ~ Fn>R99~4i.Ib׭|>B.fCZ]CV1$>Eh U֥rǹ^och?]\#evkX$v1Ь4Qi[`G|a˯dS[o5w*P)\Kt ]N޿ĿN4w嶶&pew.YK:coD_ҥ+4 ]S+՞.Kb%Ct 2v~\I^:5鵋͵l3-z \I H':Yc Z֬ Cwy /d4+@MrqpiXPryLPȄ\mK34a9ٜ搹njEԴ> uC")Gu`֯44Z6UGU̜Śl_Eu1rK;j LC1KFeY*$ u7{pܜLy3HX(-Ep"C}˷GOHr|6W ?Qsx'לz˲Xj%Be`@}${mçob ʚ'pDL=2gђ$UDjI2ۚɚ"?# :˩gg/]HNR,\PYV4/"I )Z-M?Uأ 2Y3Ob (uk8t4@+06A\KtSha$Ucyxy(M4+y|츂WT`"@]Zm0శo}1:SNrW 5 .NP$tu7Cl E\XX0my0.ciO_9nU$p&99JZ&2Ni,7E퓊:>/[#FO\n纺nKO0Ua"2'x U6x!֢Ɖπ$\^']LY}^ 6ehƪ,U?`kG׆ b#8xs~\*T0dpb]Džp JZjyzFTx{Ej ] 2" pb6y)L@۴_*0p {!X%BNyʌsKJ1w̥ 2Tk|^:NpŽmh.n+Pw廅p ֥cFuvRr)-y ,yĽ#By.c[eՌwObotJbx0~.0EyO*-6LrphA@AK@N ϟvQ#^`L@?M ,M(@nN N+Ydb< ;Oo-0&(Click here to view Figure 3 O GPL,2(

Key Concepts: Monopolist Maximizing Profit-Unit Approach

Read the notes on the left of this screen, then click on the Figure 3 link below.

P l  Qw}`2(

SHORT-RUN BEHAVIOUR

MONOPOLY

Operate at a Profit: Unit Approach

In Figure 3 we will illustrate the "operate at a profit" situation. We will use the Unit Approach to answer the 4 SR questions, as follows:

Q1: Operate this period? Yes, if price can exceed average variable cost.

Q2: If it operates, continue to expand quantity whenever marginal revenue exceeds marginal cost. In theory, the best quantity, q*, is that quantity where MR equals MC.

Q3: The best price, P*, is that price consistent with best quantity, q*, according to the firm's demand curve.

Q4: The best total dollar profit is: At q*, compute: (P* - ATC*) x q*

Q# RwYP2333(

Application Question 3

As the father of the bride you have chosen to hold the wedding in the hotel ballroom and not at the community hall. While the hall would allow you to bring in your own catering (food) the hotel requires that you use the hotel wedding menu for the banquet. Which will likely result in higher food costs, the hotel or the hall?

Why?

RH{H <So0333(Click here for the solution. SHH Tw0)(After you have completed all the slides and figures in this tutorial re-visit this page and see if you can answer Application Question 3 below. T ? Uxkl[y)[腔I)"ytD9fwR"m"mH*FM voC֩07OzPv=ŧE~5D_DOCG=1D-Q[+Gx}K/>뿍+{=Gz*ݍ_ϣy?CIHE{%WUx -~q Eｊ^-t轆}(Bߢgѿ*Z*$R¨D7"QT?DB}y$зnn,Ae7@cc7P@2/o]#B/_WQ7~}CAϽ):X^}͠M％^?GB޳׾*]ƏA%"zwF/|&#x;C{t/](cŢt"QYN+ !sg_"'!IY`b 爏]ۿ9Ov%sվJQs6_(98/ ˂ 9K!;WU*N8o:-Uu䚂@HYk\,YEMt],+V ͚7ꥺ&1D@S" $y,a;}ac>aиV|rb{29Pn+'yh^vbC]joLJ dǓ]l6)OX]?(<7.d!VatkY5ApItr{=3ui!W>TV&Z"]גwJ%CUǥɦ?N@kuhEqP+Ahy3f9&8̦o#KW줍 ~L[vp8l'*A$tC_w- q]`&zHj񩵖5GHI GěՒDRM 4+~X=>={5m\{xGu1Ė%R}/ں~}dRcZH ;G7Y׏dX$!O]unt `ejʷp;woW&3|NZIh1a:9vWwMQ|/.&s 9xn0W#RƉ$v@ |4TVK8eN5IbJ _2#ankAI8/[.Or9 Orj_GdrUE/LUIBD0גݼ-dVء{vw&*$ 1B1XXY^խnSw @J+!Q11v^ׁ_}Xgd@`J,.[_ i 0 o@DOWO/InVJh^)Tv9<<َ!NB6 ޗhŌP¨Ⲽ jE:ez;](Y|t9$PgidѬ o>QI:dqElľ}bv`jDj}A&\،Tejn}6Ǥ+ey˦! +r@KfCd>noyPy{wD@G.]6 װFs/5]UtKtP>Z-v|ZCrP\:?|j7ͺl.=QƝ$> [f45}o?ip pdb/|鑛Z:sJr)w 0vpGblWSYڎCnזUȈS7"Dgg'Fu/]̐u*ԜVH="7#ثFeS]8NIdyip* \#.0G j7rx8GwWn ͠N5NN8SB Y˗z,\6K*FXH35/C٬j;f 3'9TdlR\.iq5jg j;ѶGcr8 dH=wcpWS4 ȷuWŭcx˃s2 cQWOR8450g{6tmV77Nr|x7SpZ6͉ ^3"*XdJWB`ZAAV6/Kcv&xe'leD\!5uMi\ˍ|n1ލ+43oe6ɷh)D. W*YeCH1]/!}p Y|OФ̥Ǐb`M9,O[a{PG$tٰ0{$}^TJAO:" >iDoسL˃1̑"r!FeXE%$h Nof'UygM޳4?:VTP9ܒwbl,#̡cp*ć[??ȟe;m8(0:%,4A S6jzf|5ig5g0[h-.TLD}Aߞ;4vxJzW*o_|g6>G4L&](cܜпsD*=`㩼 *WnV?C8~QOo}-tQSطR?J&֞46:Q%R;S<`57@fii`):kӊ۝a. SK'u**h θ#5R-l5v+ҁe|*a }mzݎ礍8)! {V+G{8Xvv"280=T{1m@kB­`G~Ѹ[kI{rM> G*zaժ  |c/ h|K }'>([]P4ʯ,{f:^ y4F~O{i`1Ȣ4q@2:0:+j ٨&r {r\ħJ.DN[x?36yyB';uR<8yMd:Vi>ƭ,S~:K迚g>ͲD5p5}}*K(_oC\JQ|l0翞R׹A}jB,iJu?{)).f|] ǍKdɃ)K|^@;?` m`*w{u0'0@~YÊʭI;B?"_U|ۮBwu}S{o⼧Gځ!$/0/'iGN5 |SC×_b\ͫ"i X d XÊ !v5c˿cw޻콨g}&~JBg$($t&9o*4[_g:r҈Ϳ7\>.:/W]cghЌ>^-M\4L_W+;]ix=/%;hiN-=k&AP{G ˖ڥ1͂鏝^3pnt |@L auWJ/UMU%fʷCluטq/]w 7Q-\MaQŖ8j MK~?a{ ^>8Ys [u$|>h5ӳ0}ËdždDjd"[K;[U|pw:,`z'M8ZJ6ifimWOtR ]>M**[MStp:Vi)E4ͼ(4J"OVk# D2c5??AGPpXb'Au#-IN0[xB]5h:<ڋȮ|(3IΉ$ @[꯭̆ߊOns(IUkRC7 \iz}wtzgf6g|TKAќi+1>VA/&|tsmzV0곻2i}>?KOOͥ.~i_*T;'nc *r 8k$h !_0W;HJ|$| 7mA^^n4\k |ťQ(2r"_ׁDݝK^y6Ef[ WCd7 DK~{V_m'̗Vޜ\5b2M5|Ʌ>̬TblZLK]j&hz)Ѣi0)/C^m ]n 0b|Y^*mOZdoĺ 7՘5|˺X|FEX=|G'`p{[ڶ/r) ~(>ف: C ָD Z`"J?Tʋ2AK_7_񀏪#b0QdO = o}t [DT7H0!WN-8&Ŕh̯*g2^n]q!Ɣ!Q̻ߞcZg>ZwWP:鯿TobG?|KB]UrL+3=XQg=7{tǙ,EFCWŕ__IVl`|}OLP/P>S|x*ڹ?gJ800=Oy:Zl#?G>>uH9Q#yn;/zS9:ZXvD}<LEFrJn^/tmH*-Qb.G~ hm8\)q@Uv9ܣ%B7>_E:v,bǙ8qF/s>ؐVIbQ7ˁK o 3ĦƒKey Concepts: Excess Profits, Productive Inefficiency, Allocative Inefficiency

Read the notes on the left of this screen, then click on the Figure 4 link below.

[ l  \w}P2(

LONG-RUN BEHAVIOUR

MONOPOLY

As an industry matures, the long-run behaviour in a monopoly situation is quite different than the long-run behaviour in a perfectly competitive situation.

Recall that, in the long-run in perfect competition, the firm earns a normal profit. Also, the firm is both productively efficient and allocatively efficient.

In contrast, Figure 4 illustrates that a monopoly firm often can enjoy positive or "excess" profits in the long-run. As well, there is no guarantee that the firm will be productively efficient. Moreover, for the last unit produced, the price exceeds marginal cost so the firm restricts ouput and is allocatively inefficient.

\# M]oz2333(

Application Question 4

Why is the price of a bag of

popcorn five times more exp-

ensive at the movies than in

the comfort of your own home?

]H{H <^o0333(Click here for the solution. ^H _w0)(After you have completed all the slides and figures in this tutorial re-visit this page and see if you can answer Application Question 4 below.  _ ?i!`x}lyǏ<'RU(F_N>QRrgD[h%HH䉒ȶ|b(y2Pd%]u#[A ڦ^Yצ+ذuYd[v@Gww|,%~@"=>w a?~wO_ v~sÁݧKW_ۗ? 6::OΝ;/hv<{.%/߽vwwg7ON~ǯ~WzSxYocls?ucC}n}{~׳wyw?DO;_W=[?:397yW~8 n1nҧs/һ{$/$|?|7^d27UOOW*7 gx_'Zpw4}؟}_xG1^{/]t/^_>~s+'_ʫ/;kOGO_<3-Ur}EF?xQB4=xT(?͵=7tɏcHR[X~i[[nyyqJoooeۍa% YrG6e|[|LRB2|##P_TX*u⿧y(U~R(7D+~ýs>GJ̹+L,y0{RX~_zBz,q ǁu(m5X7XY]/脈:;#!S87sO wgeWm[HK͉ bnQ}gP vO0 H=BS sFpYF,Ǚ P>7eδbW?o +x(Km5G̠n J|9m|J,WD拊>ADTB@}Üt!26Rq|%~x߃ $-%~?຤g~Ġuqg§^o!GRkuݣHc~fu[Z'RlY%_VxRXPOc`92R\vN,A '&iܣSA߶?&96A=fL5 ?6O_.短'4Gߑ$8D{ƤҲzcUp3VHCf;D洐iJG3dm,W17/+.JҶuX<c4DhX4Hp%h]M+qmd'|Q(б2% 1ݝw0p3]R PGǎP:fҾWI/&,hVLKVg밿!q;%Gh߳ H~U}6Δ Wq3L Zj"' BG !f.J3A7EfקѠL\(λJK\e8 IJEXl,)W 7G<9L']>o,B@~ƍ=es"XҗvJ8qƨr.Q,ArQ; 8 F* 33}d̜  =I{hn)-Qv^,9dɥT0&vbV?lYH\S^LzT jh\*3xNF뚶[Xur0iLS#CT{0 K׌J<2C|3w# HCBFL8"HXT&`Rdo2ybrLemo9YЙut֙ecB6 |ỮvSzԻDCx4)mJQ24uiGviH9V$4Ҙt7v^JuUzR騞 ]T8ѫM&j\h8w2N~:ngu( ~<"ݭDJQKI,Zh")X-yho^v}//..JG)pZ=c݁_Pη?iݍsy $FvaEx·CXiw>m4O⳥h!@<]RAN-'4ZGQT^k_:][JMX q'G0]3`鲺Q'Ҷ򁩱S!Wo$rdy`N$tbo*tB;Gq$,xscQfl"e4t&L#,-FyLHo.6C5Eyxa7ב_.ѠÁ́|!` 8x⪅1#벳 $-Z55F/hSlqIeX &n[\oCGsHr$!E@P5'i0u) mXߔSh Ir3Mh };hG)YJ|Hk^J,VXX[ei]mN5e⑜/?{ؑ|zoX %04-tXN6ծUe,1W+AƢ 1~hh=Dȅi8Ni[+.JΆZ汇B "vރ,!lK=$;&ckm*_|).sQnse.U{?~C%=? p%.Mxm Uz|%$)у/0ܸ`7|M} : d^!IDׄWNI r6 ɫ% :Fr|kq3hL:[gkɎU>)a&6;dLc5atOAwe}۪rKj(|sr%6٣[Rո ,}: M W?oSm]㤬UI1qu>tè@5(/.|0c;ۧmWOBqXSX-0 ck|+k |H$C>L֝AR-A%&$i5Fl6kk| u! Ʊ M|c{={E 4:b 5N \X#}5u>t@Q ܭ'HTg:._!k9ɶMLp' j$9yw9hڰT|Chv͝8qTrX`|v/`ubkbnN AnyB)m5Pk;rH}7|\MANXE|zI||7{)!vO=ZZ+;=ɪCfmpm)\I;!Gf!| +6uk\۸ k`K4vO:]j U,R~Wa_Mm-g§)~_sڤGIMbPt4ͥ)@srwKmt̖"J[rN稬݃Sj:&@&Ve܄\ǞKHr 8%Kʣ׸tdOJ`!?lh aw Jׅ^ɱUNƕTCs.1/L@gQe{6i滹9pwo{HݗcG8%wamJ"&(;Th擌 ҚaWېupn9c| -d00j?cӠP=fn@&#Z J|/Oy&Bq(~F4cR]ftF?ŝoXB# uA\e@Lv!-"P8u\Aꡲo ;ɤ^_{|SŠku!* ]Q#*~c`y^|rY8z<[m@'X5Qv|`y(i)!@t /^t#<-37*8f q]פ_y@;U? FE;s!&}1I.,SQx ǿl|̜΄E"~z/YaRé_ kb 4ׄK*U@Y}"[|ЁOm| ͧu7A m{af\T{GD6O"I#&¬Rc@A#6^rZ md{> oF[wٺo7lg'h1 7Idt/LCv\>&߇ۓhXqoP psMp qM$ E {Ns^9j Zdղ q,f"!IeoM|EP"WLCcpD5_f)d]$Adr\3j_ kU Cj6=H)@`PU%fwxu!0x lbRt3?Ҿ^Tp3Lg s  E1cޞ_Bk8MZV' מ0#:|Pv;VE_187NҢMa$w*%+1`#9|#/egf7&S|}76әyj96Ξ 2Λ sa$$ʓ C7g!˕>u@>utct|G A Zic= .z U( fua`oRʯ/o 7+sU B^cjSŻR`-HkKAmсzxzw4$px#v4[@%~ĉ)N)P!۳i(u]]N\AfX~h(T 1=3׎ (B_|qM B S7dRuMԮ؉W‹ XSj8bJ?4ϽT.uwē.r^oc0*ջ!HG&K>lHS"(}x.}4 _dgx5q>=<.nsZ.GVkG q3nZ~7~W]deAY~&%-Ψƿ0vl|ysKBLhs*o~uKoO\Ć~ ܧQErhԔ#9Tjbcyz!¸u}J Ҡ.p{IywAq(fweٝVIGTUj6cY GG/*c^ Y[It'$dWj5wU Ch:>o21}+'ޣAcmbEJ)Y[E z06X"V蛅3E6*EŊеZ{_H.@[CzT,YD+ir|%>ypCifYMJ0c 1]* x?3o73$b.$A~AsR+Ҍ)fx οPg i'_5XTc4ngQk>,Ok6ۛM`S\Z}.Oޞt:3bqrdǗҚKXƁOY|{?}ďE2: O_/ibc|dLɗ.5<2Z mޜ2崭ԭ;SG>ٵ_ 3(-] p ^-4L\>, ۩MZ/\1Al5"IA~!Y|.6Fn>}ALƩ+cʍ{BS9UBc6of"'>?0߱7RAaFE{g| ϕMf>IBy&_+WҤ 蚝~5VwxC;,d3&JDVf5g81ݹ)dFhhϑHi>WeX_tϥ=$р}sty:|4KuM,`KVLyyt+˶8Jϭ[k_=W'L Bb}n'fI}ܒZζصe)l澟^8X+d/|]kdsҶee\,m-7pqa犤v/NG˧dH" 3݂MܻDY#Ko.}|N[O}\n/h\ΖOח'ȸqyv^ޮ)x۪7VF{_|XqK%^q9[bQǀC97op1Ә3_}Ws7/:]I9n^ mF7dAseo՟tw(ܑKSƮ~I 5ڬOsW(drlrDغ}8?\hw 6Ceuq9e]ik4q1[⺮4}Q(lZ-,E+i,eЊF]en-a[ h=SB<>o _ v+6arUoHA@A`@J ϕvNke@!a@  !?b <b1{@ Tc c+Yd ;do-0&(Click here to view Figure 5 d1ez&+%UAy#G 8[^$h9 pe#fz`7@%ly#G 8[f lgw02(

Key Concepts: Single Price Monopoly, Price Discrimination, Perfect Price Discrimination

Read the notes on the left of this screen, then click on the Figure 5 link below.

g l  Fhw}2(

PRICE DISCRIMINATION

MONOPOLY

To this point, we have assumed a "single price monopoly" where the monopoly firm charges all consumers the same price for all the units of Product A it sells.

Under certain conditions, a monopoly firm may engage in the practice of "price discrimination" in order to enhance its revenue and its profit.

Price discrimination is a practice where the monopolist charges different prices for different units of Product A sold, not based on cost differences. The basis of price discrimination is differences in "willingness to pay".

Figure 5 illustrates how total profit can be enhanced with the practice called "perfect price discrimination."

h# io2333(

Application Question 5

For the identical product, those

consumers who use coupons

pay a lower price than those

who throw out the coupons.

What monopoly practice relates

to coupons?

iH{H <jo0333(Click here for the solution. jHh kw0)(After you have completed all the slides and figures in this tutorial re-visit this page and see if you can answer Application Question 5 below. k ?lx]Lcy08zK6m|sXظsc\.tq{ユ};MK}emo}իW=}+]'?'|Ƚ||/z+۫|r)~웡Qrm{pG;ne40owI&o>ivg7`eg:W1?~l![ﶏ7ol-K?"pq~~ӵaC޿ۃwiښw>{o~ïҽ{_r8-vp {-~Ͽ>z?szϿLotn{_3ZN>c~Ha~!/~\2/"$Eҷ$M cC&/j롇1#ZpZ&PsW` ?X= #;0U/+z &|1 foX9v.Y$P :6vb#`X)|LK&_W1m)ܭ^қ+'_VI1=ؽ =18A8}ù0{Քa0$DMr%abvK$"B (WH.69 jJ @.uҪ'oQ&VbXN["/XhcI{:tx5; 68Rp0Fr9MTh 9W MÕ$ڒ$2m9=傛s) ۇdL2? *n-&bt"VLڕ!qv_ .I6OX8IJ{Ln> _-55lN6ɼJ%dʘ5pafeEȄ R:V)c~xgͬNdQG8DDeHAp.8K,gE.ks9QMQ0؋`۸c+55 \hn"9x,Mhy똇Yi/8|9bP?R#lj5%KX/:X S{0SuWmt^\⋪eT:a4JX4Ke.*)OKd\W*XZsMxd2{вnaS^l}&0ߚj7.ejC ̐ 8{/qcZm@$c'vYYtKo?+]^|I.2\WvѨ'-cM}Zȩގ4߆Ȼ;\ K|*eWDaos~o7BLHy4,%,±Oγʀm8?YT4U?qǫE. c^ (WGGVo;G2|D7!,~&B4TWGԪåfZsd霦Lkɸe4TJ>"Lse@t*.x~2Y`.Q ؏ 'wh-zN @\Wͥ@ޜj~i*G|4\T9M؍ ]2 BDTJ88ȯym vi!Ӊ5@P,}wQݜ@vD$C*Hst9@qTa0!ut?Zby/+ui6fʰN+#Z_^K\'J Kǽ,nWQ)1`JT :I.~k`*a1wJ^) KGhe2͕/I^8*10$]V^i}}"\g+NDjCbP%3b;F@ơXf!XV2/8{ A]+).}E3YD:fX+dr-/0,bѸJm%pHY+C' uaYX8.@ Q9U\2Fkw {q:.nm{0CgLݗƥ zYŲ쥈35XtO&łUs ¼jco.)>p޽ォb|c. $<7&s *H:]DNSA/B`$j&9R蒡u^rP4|x9v?@0g[jllwlwsP2".xKNƸN:BkAnHc_'Y|jA$۝6IXj\I%:t98DΞo4( r ƯɶH0M6RgR\cŁp!frKՉR8r^?FODmWeh :2NG_1ҡ+vcea&9 ߏSw6:U.YR^12  rb0kkol! ^FE [c\Ž4wQzF#6чaAz{E"MTȵ$1di\м#*W)X<Xꩩh**ڒUyՙf$/J9t!xMaib h5LChl~,^S9ת8bA7j!v{9f]$1OSS''Sqz%Tݫy:YmS$ΐY;Y; $̸ Jc;HEApԞ{ҍ|f IQb2ѳV1{Z^N({۽ho:Kraw(NtNԊN 1؟SYLO1W'2δJ, u\g:Le?$:qЎSG ,IWqmzkD)Y=?ş uf(4R) y6!a75!SVKlxhi=.tYzmzLrٕbypxj*isɏNMׯo::zL)s?uw44T!~\!~MH|nkki)\!^>tgL]j tb4 & „.؂DB-)>3E0VE[XZ4X]&X Ӛ́ +^h)IAicVm˻L'uОW\dwJuی$Z ]DKop[{'kI1fn*y~{ZЙ5_* x"z7Q$>,PWH;n9QK^)EZ5µB/Ńӊ{BviN6YWF&:ϟ dc3ѱPS\x'8 IV|4B-w[6uk&\jZTE@/iaex+Q=Jg ۇ{1` Љ6c CA`?#Y}`O;wv#t$OL];O,Pµ0iFEظ;.36˅:PB}лZy *TwkelxTOd}|Kt`ܞyWM k3({4@`h Z<>}ی56}=ĊN#% łgqCe]LXT?@)q!OOWʳXBU n ;[c\]pjmG"}LYn6y|). AAU \KkP,rAA) QF&MbR\ ٤0p*."ۅ̿srI[S0Y &{9u3r\]hb?'>F-]7 Ա@*8 ȼo疋s\.J j'L~xRn<@'R};c(ATlL[?:`}-b yh#HgfBߏ(-Mg4rX@cN_14dW#67XuȳO< I\z{9^z[X9{W?^d:.2qC!"fq|$Y_s4#$yN^^^4_\LtDxQ 9g6RYNS1 #+D];KSķ oŒom*I&ؐ,ij?ɏgƆl Htݶbcg <;y) ` lbn%!HQ۝Ɩxz!Nld [+o/v#i4UEq!Br|`c(l_⩊k}\o^E"ժ޼8,idνu8+ewCjuL̶N"dv"RK6-+muYDzc$)iܐUx.K)Xu\ Hx@7m)0iWiulև=Key Concepts: Marginal Cost Pricing and Average Cost Pricing Regulation

Read the notes on the left of this screen, then click on the Figure 6 link below.

q l  ro 2333(

Application Question 6

Can you use the monopoly

model to explain why utility

companies (gas, electricity etc.)

typically pay attractive stable

dividends year in and year out?

rH{H <so0333(Click here for the solution. sHH tw0)(After you have completed all the slides and figures in this tutorial re-visit this page and see if you can answer Application Question 6 below. t ?ux_l[uǏ?ֵKRh+Z(:qERiʒhڥ"=׊)&u튚L )`(VwCK= ۊ C>C]P C`-lw^EI h"t?;{w!6ý?'m}m+?k=pǏ^ay/䟾/{|wyޏ,x<ʣK7x?>'1'L?Bgww\:{/d?8WM}ѥlwo;q?>sƣOn>쳅~xe2{l&&֭om7pϹ~kon0}] g6~F|w\z;S^cg%6[;o;v7 2,CZdQm9̨}-j Y% s&M:eOb(eqAG˸ą oĺT_R(  . L"t"/?#N'`'}l6[F%窌*7h ˸=J-Bv='9ɋ|{{V&`xI|v#hv1.O|\mB5j׶ÕL/f2vL.Dזgx?^p_aT֖pas?9^p,FX41ckِq%>7ǙEI.^̣.ZHγ[{L‚?IC$rXr;H2AoxndnI\HYVٮGEch:9T7HiGy{$1k*X,ƅ"aHV8ET\R]fk3q/,Fb$*AMm0<U>uQ^,E.*C*2T.Ƴ*jFTP0Njo 1!.Mb(|UzM3׸Mաbb.JO * H`avYK)rQ\Ì58?rA\/pc.hhXReO.8Bi:ۦ Rۏ{ KXu‹<-q_閥N)Wdޑ:j7W//pE0^b N1>T.Ҽ\f!`(2M{s)==Bv#FGCD( 7&}n.I y;m=~SIu^ ;<+:'P,t[PM|5!@qQDX+屡ά_U[!`j_KO4qe•xVm'D|t4IefBC7XxS>Ma rEu0UaV otr߸aSұ`!];Rӎ+lul>F;PBa'$C T(0 ABűs5,y hIQ;хu QS0 O1^6:J/)V_  FI%^wkS1ΓLLi) \Nw* L(J&]p|Ɩ/^v|rx-]EN..V9'm\/VY:SK6q >*߻u{ ˃x툦0hS['L+zpxуX+(5@ޖ Z1o9Htߦ$o+0 \J3tANQJ/ yCa -a~Ii^^|/R?mDЋ \ H{/QoΧ<^_E/g:VK^hԖ" !QBs~FQ*GEzfmQI i81b(3qkŸ*G$}FBt|WԿ[*_oM}LE 1pBzHus}`9QpP z" p5ô`7.\| !j^;U @a骝%kv& *rQB=c3q=͋s. 7nA DV+?*7aW+fH֞91H5 v7*A;_J}xPzy0c2kU8rWI˵|ʆ۷г}V]J6vrnohA@Au@M ϕvQ#Y`v ww}2(

REGULATED MONOPOLY

In a typical natural monopoly, the monopoly firm's price, quantity, and profit may be regulated by the government as illustrated in Figure 6.

In theory, the government can promote allocative efficiency by forcing the firm to set a price equal to its marginal cost. This type of regulation is called marginal cost pricing.

The problem with marginal cost pricing is that, under natural monopoly, this will cause the firm to incur losses and go out of business. Thus, the regulator often sets the firm's price equal to average total cost. This type of regulation is called average cost pricing. Average Cost Pricing will cause the firm to sell more output at a lower price and at a lower profit level, and still stay in business.

w#@?x Lx(@ y y+Ydښ  ;zo-0&(Click here to view Figure 7 z y{w02(

Key Concepts: Comparison of Market Structure and Long-run Behaviour: Perfect Competition vs. Monopoly

Read the notes on the left of this screen, then click on the Figure 7 link below.

{ l  /|w}(2(

ANIMATED REVIEW

Perfect Competition vs. Monopoly

Before you leave this tutorial we suggest that you view Figure 7 which provides a brief animated review of some of the key concepts related to both perfect competition and monopoly.

Figure 7 compares the two types of industry models based on market structure and long-run behaviour.

After you click on Figure 7 below, sit back and watch the animated review.

Give your mouse clicking finger a well deserved rest!

|# }oG 2333(

Application Question 7

What monopoly practice can

explain why telephone firms

offer weeknight and weekend

discount rates on various

phone services?

}H{H <~o0333(Click here for the solution. ~H w0)(After you have completed all the slides and figures in this tutorial re-visit this page and see if you can answer Application Question 7 below.  #JFIFHHC       C  H !"1AQa#2Bq$b3Rr%'CEdDST6!1AQa"2q#BRr3b ?MP@P@’';oޖ.--ZϗXk7%j X6f=p( (1Oz2 +tw=|TwhHbdNkp\l2Ȋ&l"}F$1*/E{1+ܒdfƕz8ir DkjQ!Yo:]:PP@: s"J;+sfߜto^k"&;R2".$8ueS*Nnڲ`ͼ\Qy`\lzP|>ӷ6Z:Ud .@@q*)eP_kVp.[&⢪?nq $^nkcprUW֐ ]NPhR *5ŕIb:Xqm5zkFl島 P@%l+qSlNO>w\PjmP #:H8LsI|=D$9r|aͲ$,/4L9%Ю)Cб^xZ&e+G wpm)BT])SFqjbd3m%|lwm#&I\`v~TMkNszza^ Kf.& C$i€ ]Ԭll!n dp|.3N>k#J_8Tv?v:7WFKX{hhd@a"µ3F??ޗﰴsȘĶG~Kt7(̗_ޗԻf~ӣ%ފL%Q8#JI\T\pZ/ ñMIטEۚOYjȾ#sa1T iɮ_(Li/Jz?Rܤ1<9wL(U'-IӀ(w9Ob1FȂ;-+=(eW+ZVu8h;+)-$idӪHgԓ>{"gW;}{m̳xe,)-zsuĠG xUI=Q=*Y&twIj[;4VxFNl)틭aH^t38d¸w>Bv7(o lck?K(\&kQpbeSQuNBNgSY\_`ԗ ׳.ʯUué]C]tMCmDq9Nk |ˢ;ۦE:#iZx4D+î4q| FJ+)aj"Rê1-_bԓGl 4׉>BqbPVrmZ!j']/˨-61U6j9ALI8؅sj &%ԴReC ]q+} 5yHϩMХ^c)k`˽OqZRȶF5`Y1Lsǚ UDZ1ٕޡIZ~{1:s1K$5 6XUmʾ{Kwitv%la>)/ EEyOuXuOKtwYMb ɸSK yȑߣR2ӟ5uyyW;j"zfœZe.Pe)eMԎC)lbPc<-y41}3o8HN.{f$ ""|5|_dObwW.-Z}&:eq,uTʎ/TTu㗏ᾇU:Z, jTCOd6RL C7rnd}W!O}zbk7q^mTa;mO1g–=MI}E.N] NmMcd76\UZi> ȇ㴓xT˞3h\cה]MXo$6~0QF=؁ UPxXPWo5LQԄ3x&Ӧnt:dy4;qDA0I_ZOO|_JѺmjmܖar7ҐL'[IP+s[|QX@]lnv^p}7QG'&d>7ۨ߃6">6>ٙ dwcBgq畍yB*=`H`H@~a$T_'w]YR_JXαUd6J2{6cif+\ͺAdV.wq޸Vym:YnתRg3mg }}U^9ATڭb7˧R閨o&@ÖA\gȈx9ǪR롮)E78S.hzQ_dc>Kwm76pf+l ,w7Kz~}F=z GNxjvu4)9.L;e˹x+qjJ_bvc1M>:ɗ|%ݪiebHtGc?Y{MOy>;F ,a fTr^.<+ef,~ .)Ttj-clV)] ǥpc{mڞ1ZزJYV>Xl:iM{l$ܒ@+*iqwchn'tًe2ryGR05z(݈PͷwtrDrtsZIi/aK+{eM"ˏ]6ŁrT6۞TL-HX\R/Yl%Ǻ$\E͏_,}EvlDX])cV–Eը7,Zau}^[Hs#̞U7 o-7d^ܥiV7}gu F[J%v> |* <} g՘<m?bWtM;ԛMaޝbkȬ LvSR!ipu_-_oL#W4vX͉FTT6hQCR|5Q-rmǑ{:y; ?(:9bbL&-s!'5~&?{]vw(MPy{oT{on5HD6&>Ї*?WGx" þ]I ǧ ٶ76.Q _MY$BHQ]NjIW胁/Auw1|RCtL5}g/*kUŰɀKK={@X 5(~k<ѕStlx5MH5M#UCi2@VAo+wWvK/#<]v2mob9- axf|;BꊓF{=pZ˾.L%l@Fiwv#ϲaG=YrˎINBFSRho6v48-B§•+of{܋/ )wz]`Fڝ5)8(VQA6 jq/X %>WK!u\e÷a:[F ~DDh(%s@jQӓ 퐊}*mKZD \sx3qI'Zf뼗LUמ"݉ >N}L •SEpK5ٓ.8rh=C~iZXH^›* ( sOĺ?vl(vI-spQ?8j۔_cctdt&W#**'/5/!kѻh Ey_ )'QWGdJ!xNjhOjSz-9uU-I*[v >m5-Ev&yLUw%-c]#އXHn5nTyp/-tf"Ikol=l;ݱ?}WéԶO&{3l;sYt'A}BEEEZ]ϕoz4sW:cfԉoUG3[\yݒ}UIN\qJ96iǹ^Nu,vJKnD#\jjSO NGq[]XBNQ+3m Ye;O.EEdA[+i&>x^ )MǍs=F)}Y aimEfC{-:{N _M0&⁻!Ϯ#ZH6Ȉ}o؛-5K (<X^5c 3nnd՗H`u*}M޾u3K]#}KemWgyt.c/Nv^)(Tdw(k &FWA{n?95ڜgjv^PlӴ]bm䗣9ډo !(kp$jtμf.1tͦFf4v *:eQkS}{ZB M˶3w:COmIjHm~ӼϵF;fK{;>Ԗ9v6~ sN: ITraQksMI=3U5%%oO."10iV' ]{x5ހت($uyz k'[j)>Z.sBD%Mm.ڣFݪ~Mv*,T-P ?&Znнx0uҖxq61F4$jG7Vfs;ړrUB:h6Pj> ?rZMGՑ膊-IWDUq;nU!,X{̰f{Z,Kv̂8M nF8_ZӜ^]IoJ ( F46u&G\r@Յ;!Pgu;m1'ʀ>=8YP fq(t@T:Kv?z+ (dI5~Wr\S+M{L\.{J^^R#s@e{$ tED.)yDZUBS_aE,f9(ݷ#O-G}UM|$~IH\UD}).(Q^Kо,~LCyXX68RR+^^o{MЭ'3#KUJŤNٕv q^i?VXĖI~@-sI^Xl) qlpR3%"'*@!tŌԩ7$S ÞT<~WA=6[&z#s&~uNܚkMl@ex ˘$E-XTk4PU$_Ӧ7 *O K" BdJ(rTuRlY3@(A4N cUNG/5zUcscD0qNUeT]HH p5nэ~}Iw5 S_ӔIzShuے{a+-5Z}X;ۨ.u]~^E>J\ \c^vZtNcTX?D#+-Dn/u#jmPqE}s5r;yO1}ۏ>K+6P@c]}]`].~}4LL%;=͠J:_Y#B-,wFTsR‹#@ lfNcDWãtGxxENϡU*zQu\ȴCFmߝLDMn) T\؍+xW FHZmUϯ+?*8/rIDwZz=v.Qėb:~*<,3㶎y\aU>tKN.)mRzC>:"T7mҥ\HD2<2D,eyƘ.1Ig."5z pZ$-ZQo73-6i >ilo zP>WJd-6h-@ø%7-Q{Պl*UƴT=:v\Ί-ո ė$lM*I݄Ts:zjٮC%eN+:m TU9\r]b[{3;WT!4 \qAy TGTN2Win|.tG9EB5t.۶:e8\ $\M@P@P@P@P@P@P@P@P@P@ٿ6rnoA@A@M ϕvQ#]@ ?f/)(X  _2&(

Congratulations! You have completed this concept tutorial!!

 w@2&(

MARKETS IN ACTION: MONOPOLY

@? ɿvp1  Moz2333(

Application Question 4

Why is the price of a bag of

popcorn five times more exp-

ensive at the movies than in

the comfort of your own home?

H{ woP2(

Solution to Application Question 4

It is a social "no-no" to bring your own popcorn into a theatre and you risk the embarassment of being told NOT to bring in your own popcorn by theatre staff. Hence, once you are in the theatre you only have one option -buy the popcorn from the concession booth. You have no close substitutes. The concession booth has a monopoly in the sale of popcorn during the show.

` Kw 0(Click here to return to the previous slide.  {a@ ɿvp1><  Kw f2(

Solution to Application Question 1

One can use the monopoly model to explain

the price of "new release movies." That is, when a new movie is released, there are few

good substitutes, other than new movies played at the expensive movie theatres. One year later, there are many ways (more competition) to view the same movie, including discount movie theatres, on TV, through VHS video and DVD rentals.

Ā o# 2333(

Application Question 1

Why is the price of admission

to a "new release movie" so

much more than the price paid

to view the same movie one

year later?

H{H Kw 0(Click here to return to the previous slide.  { C@ ɿvp0  sw\Э2(

Solution to Application Question 2

The exclusive contract that you signed essentially gives your supplier (oil refiner A) monopoly power over you. If the refiner significantly raises the wholesale price of gas to you, the contract prevents you from buying gas from another refiner (wholesaler). You can expect to pay "top dollar" for all the gas you buy from the wholesaler.

2 Kw 0(Click here to return to the previous slide.  {i L Ko[2333(

Application Question 2

In order to purchase a

brand name franchise gas

station, you agreed to a

contract that forces you

to purchase all of your gas

from the same supplier -

oil refiner A. What will this

exlusive contract do to

your wholesale price of gas?

H{H@ ɿvp1Ì w Э2(

Solution to Application Question 3

By making you use the hotel's menu as the

condition to use the hotel's ballroom, the hotel has gained monopoly power over the pricing of the wedding menu. You now have no alternative but to pay the menu price that the hotel "dictates to you." If you had, instead rented the hall, you would have been able to encourage competing outside caterers to provide you with more competitive bids on the wedding menu price. The hall, therefore, would have resulted in a lower food price for a comparable wedding menu.

Ā Kw 0(Click here to return to the previous slide.  { V wYP2333(

Application Question 3

As the father of the bride you have chosen to hold the wedding in the hotel ballroom and not at the community hall. While the hall would allow you to bring in your own catering (food) the hotel requires that you use the hotel wedding menu for the banquet. Which will likely result in higher food costs, the hotel or the hall?

Why?

H{H@ ɿvp0 ;w S2(

Solution to Application Question 5

Coupons are an effective way to charge two different prices for the same product, NOT based on cost differences. The firm issuing the coupon charges a higher price to those consumers willing to pay more (i.e those who throw out their coupons). This is an example of "price discrimination."

x o2333(

Application Question 5

For the identical product, those

consumers who use coupons

pay a lower price than those

who throw out the coupons.

What monopoly practice relates

to coupons?

H{H Kw 0(Click here to return to the previous slide.  {>m@  ɿvp0 w \Э2(

Solution to Application Question 6

Utility companies are typically monopolies

protected from competition due to barriers to entry such as economies of scale and exclusive franchises. This being the case, these firms can enjoy positive economic profits in the long-run. These positive profits enable the payment of attractive long-term dividends.

2 o 2333(

Application Question 6

Can you use the monopoly

model to explain why utility

companies (gas, electricity etc.)

typically pay attractive stable

dividends year in and year out?

H{H Kw 0(Click here to return to the previous slide.  {Wv@  ߻ Ox *w @2(

Solution to Application Question 7

The phone company is practising price discrimination where it is charging different rates based on the differences in willingness to pay at different times over the week.

During a typical weekday, business customers have little choice but to use certain phone services such as long distance or cell phones - here there is a greater willingness to pay. In formal terms, the business demand is inelastic. The phone company is able to increase its total revenue received from the business market by raising the price during weekdays.

On weeknights and weekends the residential demand for phone services is more elastic. At these times the phone company can increase total revenue by lowering phone rates to the residential market. Overall, the phone company increases its profit by price discriminating.

m oG 2333(

Application Question 7

What monopoly practice can

explain why telephone firms

offer weeknight and weekend

discount rates on various

phone services?

H{H Kw 0(Click here to return to the previous slide.  @?6}a L_Lh ;oO0&(Click here to exit Figure 1  pw}2(

INTRODUCTION

In this tutorial we will examine how Product A is supplied by a firm in a market structure or industry environment called Monopoly.

MARKET STRUCTURE

The features of Monopoly are:

1. Single Seller: The monopoly firm is the sole supplier of a product with no close substitutes.

2. Price Searcher: The firm's demand curve is the same as the industry demand curve. This means that the firm's demand curve is downward sloping. As the firm increases output, the price will decline. The firm must search to find the best price.

3. Barriers to Entry: In every monopoly, obstacles exist which prevent other new firms from entering the industry. Figure 1 provides examples.

 #9yPDC( k5l{=$[l٬Rij=g15~9P0iC&uVSYS/f4hi@%kf/vdιk*`2lܦM(e0d&)TeKٹMP s5y#;K[ށ8އ;%^=$>LhR ]\宁o鏈\ـ[njwƽ1t (HAү^˾-˪j0*_hҀAW}{,tljXʖ9"^HḏEϧg5b0`ڌ@#@ lp.f19N#GkY(j3i|Fvy<ZZ# \ʞvy< F QHh S9N#gցj3i1sFm 6s;>F֣ցh3ҞVs;>F֣ցj3isT.@3vy<ZZ# \jQHw9N#GkQ@` iS3i16yj=h6s=*{g3h j=h66 0.hOhͤ4ggӳz10mT@#@ lv}:=-gԣ \Jh j=h66 6s;> V;ϧg5b0`ڌ@s=+g3h j=h66 0.gmh 6s;>F֣ցj3i̾Ftz6ZZ# \jQHw9N#GkQ@` M[9N#GkQ@`FU69NF3Y(h8Jfcg3h j=h6sFm 6s;>F֣ցh6*Vs;>F֣ցj3i1skuFm 6s;>F-G.qev};<GfcV@#@ lv};F֣ցj3i#NB'lv};<GfGfcg3skuFm 6s;>FֳQ.u nv};F-G.vՌͤ4ggӳb0`L]ϧg5b0`ڌ@#@ `\[16s;>F֣ցj3i>Fvy<ZZ# \KYvy<ZZ# ͤ4>}Fvy<ZZ# \ vy<ZZ# ͤ4Gfcg3`\+ћHhϧg5b0`|Fvy<ZZ# \Yvy< F QHh %a3i14x F @269N#gցh8Vs;>F֣ցj3i1s=gӳz10mFm lp.gmy6s;>F֣ցj3igq4x F @6 6s;>F֣ցh2Tfcg3yj=h6s=,eg3h j=h66 0.hŌͤ4ggӳz10mXʌ@#@ lv}:=-gԣ \K)Yh j=h66 6s;> f3;ϧg5b0`ڌ@s9Fm lv};<G.gv};<Gf}gq4x F @K4x F QHh 3f24ggӳz10mFm V}69N#GkQ@` Aik9N#GkQ@`FV69N#GkQ@` Al9N#GkQ@`F6#@ lv};<Gf %o3i14x F @4x F QHh %r3i14x F @3h j=h66 6s83w9N#GkQ@`s[@3vy<ZZ# \Kvy<ZZ# ͤ; r3ig3h j=h6sϭFm 6s;>F֣ցh=hϧg5b0`ڌ@sϭFm 6s;>F֣ցh=2vs;>F֣ցj3i1sϮYFm 6s;>F֣ցh?ndx F QHw9N#63yj=h669 IϧG`b0`ڌ@#@ lp/Ad9N#GkQ@`Fvy<ZZ# ͤ4gw3h j=h669 q14x F QH/Ah9N#GkQ@`Fvy<ZZ# ͤ4g&׳4x F QHh {ϧg5b0`ڌ@#@ lp/Ap9N#GkQ@`FɌvy<ZZ# ͤ4g1V};<Gl`1V};<Gl`ӑo_,Yܻ1z.],v ggӳz1ǀkQ@`FzT_sl< F QHh Gn4ggӣѰ z10mFm zTsl< F QHh fL#9NF3Q@`Fj£69NF3Q@` J9NF3Q@`Fq$69N#GkQ@` L4gF QHhϧg5s{=GfIT69N#gցh0`Fvy< 7S@#@ lv};<G.U95gӳc8ퟶ66\B6s;?UjϧG`c8ퟶ66\"6s;?UjϧgQ@q?m0mFm Q69N#GkQ@` L9N#GkQ@`F^d6 6s;>F֣ցh*s;>F-Gfclggӳb0`ڌ@#@ `\ҞћHhϧG`b0`ʙ-Fvy< F @[%6yj=h66+Tfcg3yj=h6r*{Fm 6s;>gցh0s;>gցj3i1s*{Fm 6s;>F֣ցh2 fcg3h j=h6rg3yj=h66/.$hϧG`b0`ڌ@rjgӣѰ z10mFm 6s8,s;>F֣ցj3i1rJ{Fm 6s;>F֣ցh/fcg3yj=h6r{Fm 6s;>F֣ցh/Js;>gցj3i1rg3yj=h66/.hϧG`b0`ڌ@r+Fm 6s;>gցh,Vs;>F֣ցj3i1rKuFm 6s;>F֣ցh/V}:=-Gfcg3ruFm 6s;>F֣ցh/Tfcg3yj=h6ruFm 6s;>F֣ցh0Tfcg3h j=h6s+ug3h j=h6622Tfggӳz10mXʌ@#@ lv};<G.aEͤ4ggӳz10m4Xggӳz10mFm 0.deͤ;ϧg5b0`ҮϧG`b0`ڌ@#@ `\b0`ڌ@#@ lv}:=Ұ-ϧG`b0`ڌ@#@ `\QHhϧg5` c+9N#gցj3i1r=g3yj=h66.JTfcg3lz10mϧG`b0`ڌ@#@ lp.^Ltz6ZZ# ͤ4gYj@#@ lv}:=-G.^v}:=-GfcZ2ggӣѰ z10mFm 0.^lv}:=-GfcZ@#@ lv}:=-G.TŌͤ4ggӳb0`ʱFvy<ZZ# \Yvy<ZZ# ͤ4ҶϧG`b0`ڌ@#@ `\+xYtz6ZZ# ͤ4ĸMFtz6ZZ# \b0`ڌ@#@ lv}:=չNF3Q@`Fp tw 22&(

If a company obtains a patent for a new product it invents,

it will have the sole right to sell its new product for a period

of 20 years in Canada. This means that the monopoly firm will be able to affect the price of its new product.The firm is

called a price searcher, as explained in the example below.

  ]倭2&(

Due to patent protection, Caremore Ltd., is the sole manufacturer of XCold, a

new prescription drug that cures the common cold within a 24 hour period. The

demand curve for XCold is displayed below. Click here to continue.

!v Wl 0&(a  Wl 0(a  Wl 0&(a $  Wl 0&(b  Wt 0(b  Wl 0&(b $` Wd{ 0&(c  Wl 0(c  Wl 0(c  Wd{ 0&(c . Wl 0&(d  Wt 0(d  Wl 0&(d $ @` Wl 0&(e  Wl 0(e  Wl 0&(e $z  j_Q`2&(

$300

` fWf{ 2&(

1

VM  j_Q`2&(

$250

 fWf{ 2&(

2

_  fWf{ 2&(

3

i  j_Q`2&(

$200

   fWf{ 2&(

4

!rm  j_Q`2&(

$150

"E fWf{ 2&(

5

#{  j_Q`2&(

$100

$C~ k_M_`2&(

Price

%2F@ o2&(

quantity in tonnes per day

&gP w P2&(

Suppose that Caremore first charges a price of

$150 a tonne and sells 4 tonnes a day. If it

then raises the price to $200 per day, the quantity

sold will drop to 3 tonnes per day. Note that Care- more does not lose all its sales when it raises price (like in perfect competiton) as no close substitutes exist for XCold. Now the firm must search for the best price to charge to maximize profits.

' w  `2(

Figure 1a: Legal Based Monopoly: Patents

( l @ !"#$%&'(? ~DV, ;oO0&(Click here to exit Figure 1  ;oO0&(Click here to exit Figure 1 f0PůIn each province in Canada, a government monopoly called medicare provides all the basic health care insurance benefits. Medicare pays for medical services and hospital expenses.

Various restaurants, coffee shops, and gift shops have been granted exclusive licenses by the government to operate in Canadian airports. Beverage manufacturers and distributors have bid to become the exclusive provider of soft drinks in various government organizations.

Canada Post has been granted an exclusive public charter to deliver first class mail in Canada.

In many Canadian provinces, the provincial government operates the retail liquor stores. Click here to continue.

  w < `2(

Figure 1b: Legal Based Monopoly: Exclusive Franchises

 l @?LMe|Py6DnCy((%ϊDsm-ΒL p>ڂKG/F+֪^MVIsF֣ցh,fcg3h j=h6r gӳz10mFm 6s8,Ty<ZZ# ͤ4ggӁrKg5b0`ڌ@#@ lv}8,T6y<ZZ# ͤ4ggӁrLAg5b0`ڌ@#@ lv}8,`};<Gfcg3r gӳz10mFm 6s8,`&};<Gfcg3r 4gӳz10mFm 6s8,`f};<Gfcg3r͑Fm 6s;>F֣ցh,8hϧg5b0`ڌ@rÍFvy<ZZ# ͤ,8dhϧg5b0`ڌ@rÎ$Fvy<ZZ# ͤ,fcg3h j=h6rÎFvy<ZZ# ͤ,8hϧg5b0`ڌ@rÏFvy<ZZ# ͤ,8hϧg5b0`ڌ@rgӳz10mFm 6s8,`};<Gfcg3rgӳz10mFm 6s80@N#GkQ@`F^XF};<Gfcg3 Mwy(P2&(

Consider the electricity utility firm below. The industry demand curve for

a Canadian city is displayed below. Note that, as the firm expands its

quantity supplied, its long-run average total cost continually declines

(economies of scale). Click here to continue.

!+ w  `2(

Figure 1c: Natural Monopoly : Economies of Scale

 l  j_B`2&(

$.14

2 gW 2&(

20

^ gW 2&(

30

g gW 2&(

40

q j_B`2&(

$.07

3 j_B`2&(

$.05

3- _Fa2&(

Price

per

kwh

 w  `2&(

quantity in millions of kilowatt hours per month

R w 2&(

A natural monopoly is an industry where there are such large economies of scale that one firm can supply the entire market at the lowest possible cost.

  gW 2&(

10

VM j_B`2&(

$.20

2. j_B`2&(

$.10

2 i_B`2&(

ATC

"# l_{`2&(

Demand

  sw +2&(

As the firm expands to provide 10 million

kwh per month in the Canadian city, long-

run average cost declines to $.14 per kwh.

Z)_~V=%C lqS܂ Ʋo|r߀ ;oO0&(Click here to exit Figure 1 !"f&0PůڂKL\t/;Q3 y6D^Az7$]PKw!s#ɿ-@#@ lv};<gԣ \vy< F QHh F[3i16yj=h6rKFm 6s;>gցh*fcg3h j=h6rg3h j=h66+fcg3h j=h6rKFm lv};<G.Zyoͤ4ggӣѰ z10mǖggӣѰ z10mFm 0.]oͤ4ggӳz10m@#@ lv};<G.`Yq(ͤ4ggӳ}J0`.ϧg5`Fe69N#GkY(h0ds;>FֳQfc ggӳ}J0`ڌ@#@ `\ ћHhϧg5` 8e>FֳQfcg3sFm 6s;>FֳQ.`ɣ,v};<gԣ ͤ45-ϧg5`Ff69N#GkY(h0ds;>FֳQfcŒ@#@ lv};<gԣ \vy<ZϩF QHh s3i14xR6sEFm 6s;>FֳQ.` vy<ZϩF QHh ;mFvy<ZϩF @'4xR660,fcg3h k>0m ggӳ}J0`ڌ@#@ `\4xR669 ~3i14xR6y$vy<ZϩF QHh r@#@ lv};<gԣ  Lwy(P2&(

Consider the electricity utility firm below. The industry demand curve for

a Canadian city is displayed below. Note that, as the firm expands its

quantity supplied, its long-run average total cost continually declines -

economies of scale. Click here to continue.

!+ w  `2(

Figure 1c: Natural Monopoly : Economies of Scale

 l  j_B`2&(

$.14

2 gW 2&(

20

^ gW 2&(

30

g gW 2&(

40

q j_B`2&(

$.07

3 j_B`2&(

$.05

3- _H_a2&(

Price

per

KWH

 w  `2&(

quantity in millions of kilowatt hours per month

R w 2&(

A natural monopoly is an industry where there are such large economies of scale that one firm can supply the entire market at the lowest possible cost.

  gW 2&(

10

VM j_B`2&(

$.20

2. j_B`2&(

$.10

2 i_B`2&(

ATC

"# l_{`2&(

Demand

  sw +2&(

As the firm expands to provide 20 million

kwh per month in the Canadian city, long-

run average cost declines to $.10 per kwh.

Z!Ʋo|r߀ ;oO0&(Click here to exit Figure 1 "#f@"#?y6DnCy((%ϊDsm-L}2>ڂKhb"y5g;~9ډKɲ xz ѹ ֪\3 0ggӣѰ z10mFm 0.fIͤ4ggӣѰ z10m斘z@#@ lv};<G.iͤ4ggӣѰ z10m桙PϧG`b0`ڌ@#@ lp.ihͤ4ggӣѰ z10m朚1l< F QH.jtz6ZZ# ͤ4g朚̍1l< F QH.jLtz6ZZ# ͤ4g@#@ lv}:=-G.iɿ9NF3Q@`桜pϧG`b0`ڌ@#@ lp.ihͤ4ggӣѰ z10m桝8ϧG`b0`ڌ@#@ lp.iͤ4ggӣѰ z10m朝1l< F QH.jLtz6ZZ# ͤ4g朞1l< F QH.b v};<Gfcz@#@ lv};<G.e)v};<Gfe0Fvy<ZZ# \4xR669 a4ggӳb0`ڌ@r Dgӳz10mFm 6s8.F};F֣ցj3i1;f69N#GkQ@` gQfcg3sPϖgӣѰ z10mFm 6s84fcg3yj=h6sNOFtz6ZZ# ͤ@NF3Q@`F^iDhϧG`b0`ڌ@ Lwy(P2&(

Consider the electricity utility firm below. The industry demand curve for

a Canadian city is displayed below. Note that, as the firm expands its

quantity supplied, its long-run average total cost continually declines -

economies of scale. Click here to continue.

!+ w  `2(

Figure 1c: Natural Monopoly : Economies of Scale

 l  j_B`2&(

$.14

2 gW 2&(

20

^ gW 2&(

30

g gW 2&(

40

q j_B`2&(

$.07

3 j_B`2&(

$.05

3- _H_a2&(

Price

per

KWH

 w  `2&(

quantity in millions of kilowatt hours per month

R w 2&(

A natural monopoly is an industry where there are such large economies of scale that one firm can supply the entire market at the lowest possible cost.

  gW 2&(

10

VM j_B`2&(

$.20

2. j_B`2&(

$.10

2 i_B`2&(

ATC

"# l_{`2&(

Demand

  sw +2&(

As the firm expands to provide 30 million

kwh per month in the Canadian city, long-

run average cost declines to $.07 per kwh.

Z!Ʋo|ro߀"Ʋo|s*߀ ;oO0&(Click here to exit Figure 1 #$f@#$?y6DnCy((%4.j]mJ]%?3r[?՜j&ao@te鐅'\"^MW^WdT~`gr9Ĉ@N39ggӳz10mFm 0.rvy<ZZ# ͤ4g @#@ lv};<G.rHͤ4ggӳz10m Ȍ@#@ lv};<G.hvy<ZZ# ͤ4g曙@#@ lv};<G.kIͤ;ϧg5b0`̲3NF3Q@`F\37QHhϧg5b0`3NF3Q@`F\7QHhϧg5b0`͛3uFtz6ZZ# \evy<ZZ# ͤ4G7eGfcg3`\~Hhϧg5b0`@8Fvy<ZZ# \Hhϧg5b0`@:AFvy<ZZ# \㰙vy<ZZ# ͤ4@;Fvy<ZZ# \ɑHhϧg5b0`@=aFvy<ZZ# \c96yj=h669 Nf3i14x F @{&n69N#GkQ@` Dg#>F֣ցj3i1hfn69N#gցh18F};F֣ցj3i1Er3h j=h669 |g#>F֣ցj3i1[n69NF3Y(h)hF};ϧg5b0`ڌ@#@ `\sѠ6s;>F֣ցj3i  Fm 6s;>F֣ցhAIFvy<ZZ#  Lwy(P2&(

Consider the electricity utility firm below. The industry demand curve for

a Canadian city is displayed below. Note that, as the firm expands its

quantity supplied, its long-run average total cost continually declines -

economies of scale. Click here to continue.

!+ w  `2(

Figure 1c: Natural Monopoly : Economies of Scale

  l  j _B`2&(

$.14

 2 g W 2&(

20

 ^ g W 2&(

30

 g g W 2&(

40

 q j_B`2&(

$.07

3 j_B`2&(

$.05

3- _H_a2&(

Price

per

KWH

 w  `2&(

quantity in millions of kilowatt hours per month

R w 2&(

A natural monopoly is an industry where there are such large economies of scale that one firm can supply the entire market at the lowest possible cost.

  gW 2&(

10

VM j_B`2&(

$.20

2. j_B`2&(

$.10

2 i_B`2&(

ATC

"# l_{`2&(

Demand

  1w F2&(

As the firm expands to provide 40 million

kwh per month in the Canadian city, long-

run average cost declines to $.05 per kwh.

At this point, the one firm supplies the total

city market demand for electricity. This leaves

no room for any other firm to compete. A

natural monopoly is born!

Z#Ʋo|sr/ڀ ;oO0&(Click here to exit Figure 1 $%f@ !"#$%?yK w `2(

Figure 1d: Predatory Behaviour

 l  w R2&(

A dominant firm may establish and maintain a monopoly

situation by engaging in behaviour that bankrupts existing

firms and deters new firms from entering the industry. This

type of behaviour is called predatory behaviour. Examples

include situations where:

A national airline provides deep discount rates (below cost) on local routes that results in regional air carriers going out of business.

Microsoft provides its Internet Explorer free to resellers, in order to establish a near monopoly position in the Internet software industry.

A large aluminum refining company purchases all the existing reserves of bauxite ore, a key raw material needed to produce aluminum. Click here to continue.

  ;oO0&(Click here to exit Figure 1 f@ &6bP uw}2(

INTRODUCTION

In this tutorial we will examine how Product A is supplied by a firm in a market structure or industry environment called Monopoly.

MARKET STRUCTURE

The features of Monopoly are:

1. Single Seller: The monopoly firm is the sole supplier of a product with no close substitutes.

2. Price Searcher: The firm's demand curve is the same as the industry demand curve. This means that the firm's demand curve is downward sloping. As the firm increases output, the price will decline. The firm must search to find the the best price.

3. Barriers to Entry: In every monopoly, obstacles exist which prevent other new firms from entering the industry. Figure 1 provides examples.

 # /om0&(End of Figure 1 m@ ? @,PFg\ oO2&(

Click here to exit Figure 2

 H w}2(

REVENUE BEHAVIOUR

Monopoly Firm's Marginal Revenue

Since, for a monopoly firm, price and quantity demanded are inversely related (price searcher), the firm's marginal revenue will be below the firm's price, for each quantity level.

Graphically, the marginal revenue curve is downward sloping and is below the firm's demand curve.

One way to understand why marginal revenue (MR) is below price (P), is to realize that when the monopolist sells an additional unit at the new lower price, this new lower price must also apply to all previous units (which were originally sold at a higher price).

In Figure 2 we illustrate this relation between marginal revenue and price for a monopoly firm.

 # !02(

Figure 2a: Demand Schedule and Curve for Monopoly: XCold Drug

!@E 6 e"32&(

Due to patent protection, Caremore Ltd., is the sole manufacturer of XCold, a

new drug that cures the common cold within a 24 hour period. The demand

schedule for Caremore's XCold is displayed below. The quantity is in

terms of tonnes of XCold manufactured and sold per day by Caremore.

"  k#_M_`2&(

Price

 #a $o2&(

quantity in tonnes per day

 $%%yyC( dS6/f4hiO I6.SVMն˛0 x<-ͥ,& (F]#:*?uwqE=ɗ!#t{~H}sfoHs=F@\+G"r0p(4.]!NZ#Tiڔɦc@ lv};<gԣ ͤ?Thϧg5b0`ڌ@zҦQHw9N#GkQ@` ؕ2@#@ lv}:=-G/E*T9N#GkQ@`FS,v}:=-Gfc69N#GkQ@` T3i1l< F @ S(ͤ4ggӳz10m69N#GkQ@` BΌ@#@ lv};<G/A T3i14x F @IS(ͤ4ggӳz10me69N#GkQ@` B@#@ lv};<G.-r9NF3Q@`#@ lv};<Gf B^@#@ lv};<G/A [ 3i14x F @ rlv};<Gfc#@ lv};<Gf ߗ 1l< F QH/B\;ϧg5b0`ڌ@z(r6s;>F֣ցj3iːFtz6ZZ# ͤ+-Fvy<ZZ# ^s;>F֣ցj3i1z-ћHhϧg5b0`KaFm 6s;>F֣ցh.Acg3h j=h66^<hϧgQ@`#@ lv};<Gf ٗ g3h j=h66^|hϧg5b0`ڌ@zG6s;>gQf 'Eb4gg1hϧg5c8Q@`01V};<Gl`L"gg곍Y6yj=h;g ͤ4"Eglz1vF QHh D)]|ygr99b fcg3lz10mESC@3vy<ZZ# \htz6ZϩF QHh M9N#GkQ@`Fnc69N#GkQ@` AHv3i14x F @c69N#GkQ@` ]L<Gfcg3s4x F QHh M4ggӳb0`ڌ@s䩦3lz10mFm 0.~%4v};<Gfc"gg곍Y4x gуfc"gg곍YlF-G.}eS(ͤ4ggӳb0`΋*eFvy< F @%L69N#GkQ@` T3i14x F @ץL69N#gցh9~hϧgQ@`H g3h j=h66\:6s;>F֣ցj3iAcg3yk>0mFm e69N#GkQ@` AW3i14x F @69N#GkQ@` ][ 9N#GkQ@`Fɳ4x F QHh \4ggӳ}J0`ڌ@skFvy< F QH.}r9N#gցj3i Fvy<ZZ# \ ћHhϧg5b0`.ϧg5b0`ڌ@#@ `\vy<ZZ# ͤ4 Fvy<ZZ# \+ ћHhϧgQ@` %d9N#gցj3i1sFm 6s;>F֣ցh9b4fcg3lz10mLYggӳz10mFm `\ ћHhϧg5b0` ϧG``FP69N#GkQ@` cf>F֣ցj3i169N#GkQ@` ;i0`ڌ@#@ lv};<G69N#GkQ@` d3i14x F @E3h j=h669 Al3i14x F @63h j=h669 ]o9N#GkQ@`F# ͤ4ggӳz0 As3i14x F @J4x F QHh Қv@#@ lv};F-GfcA69NF3Y(h2 ϧg5b0`ڌ@#@ `^fcg3lz10mf'#@ lv};F֣ցh/Fvy<ZZ# ^tfcg3h j=h6z/Yvy<ZZ# ͤ4Lgpfggӳz10mFm z10mFm 6s;> Ѯggӳb0`ڌ@#@ `^4fggӳz10mA4x F QHh |ggӳz10mFm 0/Eg3i14x F @饨ͤ4ggӳz10m[69N#GkQ@` ҚV@#@ lv};F-Gfc69N#gցhQ5ϧgQ@`F*lv};F֣ցh2 Fvy<ZZ# ^Tfcg3h j=h6zS9ћHhϧg5b0`!MFm 6s;>F֣ցh5!cg3h j=h66^fcg3h j=h6zSkћHhϧg5b0`!MFm 6s;>F֣ցh8Mϧg5b0`ڌ@#@ `^Ldx F QHhϧgzSћHhϧg5b0`MMFm 6s;>F-G/Jn9N#gցj3i1zSSQHhϧgQ@` Ҩvggӳb0`ڌ@#@ `^Ds;>F-Gfc[ȣ69N#GkQ@` u14x F QH/Eo3i14x F @ͤ4ggӳz10m[,69N#GkQ@` n@#@ lv};<G/Jt9N#gցj3i1za"4x F QHh̊gӳz10mFm 6s82 ϧg5`F:)lv};F-Gfcg3 % &T퀭2&(

Point a shows that at a $300 price per tonne, 1 tonne a day will be demanded.

Point b shows that at a $250 price per tonne, 2 tonnes a day will be demanded and so forth...Click here to continue.

 &J f'W 2&(

q

 'a  f(W{ 2&(

P

(!  f)Wf{ 2&(

1

)b0 j*_Q`2&(

$300

*0 f+Wf{ 2&(

2

+bl j,_Q`2&(

$250

,l:| f-Wf{ 2&(

3

-b j._Q`2&(

$200

.: f/Wf{ 2&(

4

/b j0_Q`2&(

$150

0  f1Wf{ 2&(

5

1c#  j2_Q`2&(

$100

2# c2`!?#%ؔ' )䳈+\ +3o7!2&(

The Demand Curve for Caremore's

XCold. This curve shows that as

Caremore changes its quantity sold,

the price will change. The monopoly

firm is a price searcher.

-3n j4_Q`2&(

$300

.4b  f5Wf{ 2&(

1

/5[ j6_Q`2&(

$250

06bX f7Wf{ 2&(

2

17\p f8Wf{ 2&(

3

28lp j9_Q`2&(

$200

39b f:Wf{ 2&(

4

4:p j;_Q`2&(

$150

5;bӀ f<Wf{ 2&(

5

6<,p j=_Q`2&(

$100

7= @     !#%')+-./01234567(@ >oO2&(

Click here to exit Figure 2

>f0PůREVENUE BEHAVIOUR

Monopoly Firm's Marginal Revenue

Since, for a monopoly firm, price and quantity demanded are inversely related (price searcher), the firm's marginal revenue will be below the firm's price, for each quantity level.

Graphically, the marginal revenue curve is downward sloping and is below the firm's demand curve.

One way to understand why marginal revenue (MR) is below price (P), is to realize that when the monopolist sells an additional unit at the new lower price, this new lower price must also apply to all previous units (which were originally sold at a higher price).

In Figure 2 we illustrate this relation between marginal revenue and price for a monopoly firm.

 ?# @02(

Figure 2b: Marginal Revenue is Below Price for XCold Drug

 @@E 6 Abိ2&(

Since Savemore is a monopoly firm selling XCold, it has market power, which

means that it will lower the market price, if it increases quantity sold. This implies

that, for each quantity level, marginal revenue (MR) is less than price (P).

A eByE[%;𪝈%;[f+2=6OG;[Ґ:!n("´r+`"L iڔB 6CT2&(

When Caremore increases quantity sold from 1 tonne to 2 tonnes a day, total

revenue increases from $300 to $500. This means that the marginal revenue for

the 2nd tonne is $500 - $300 = $200 which is less than $250, the price of the 2nd tonne. Click on point b in the table to display the marginal revenue.

CJ fDW 2&(

q

D0 fEW{ 2&(

P

EB0 sFg7 2&(

Total Revenue

F0 fGWf{ 2&(

1

Gj  jH_Q`2&(

$300

Hj  tIg9 2&(

300 x 1 = $300

Ij  fJWf{ 2&(

2

J@ jK_Q`2&(

$250

K@ tLg9 2&(

250 x 2 = $500

L@*M!MZ  zNoS2&(

Marginal Revenue =

N:3  rOg5 2&(

Change in TR

O  qPg0 2&(

Change in Q

P@6aPEpkl!QyE[%φ+&`iDGL'L U5UDK~I8{8&F]<U; KwT(+q

R0 fSW{ 2&(

P

SB0 sTg7 2&(

Total Revenue

T0 fUWf{ 2&(

1

Uj  jV_Q`2&(

$300

Vj  tWg9 2&(

300 x 1 = $300

Wj  fXWf{ 2&(

2

X@ jY_Q`2&(

$250

Y@ tZg9 2&(

250 x 2 = $500

Z@Z  z[oS2&(

Marginal Revenue =

[:3  r\g5 2&(

Change in TR

\  q]g0 2&(

Change in Q

] y^o2&(

$200 = $500 - $300

 ^@ _oB2&(

For the 2nd tonne, the MR of $200

is less than the price (P) of $250.

!_ `T2&(

When Caremore increases quantity sold from 1 tonne to 2 tonnes a day, total

revenue increases from $300 to $500. This means that the marginal revenue for

the 2nd tonne is $500 - $300 = $200 which is less than $250, the price of the 2nd tonne. Click here to continue.

"`J@ !"B ?aT2&(

When Caremore increases quantity sold from 2 tonnes to 3 tonnes a day, total

revenue increases from $500 to $600. This means that the marginal revenue for

the 2nd tonne is $600 - $500 = $100 which is less than $200, the price of the 2nd tonne. Click on point c in the table to display the marginal revenue.

aJ fbW 2&(

q

b0 fcW{ 2&(

P

cB0 sdg7 2&(

Total Revenue

d0 feWf{ 2&(

1

ej  jf_Q`2&(

$300

fj  tgg9 2&(

300 x 1 = $300

gj  fhWf{ 2&(

2

h@ ji_Q`2&(

$250

i@ tjg9 2&(

250 x 2 = $500

j@ fkWf{ 2&(

3

k jl_Q`2&(

$200

l tmg9 2&(

200 x 3 = $600

m4n+ n zooS2&(

Marginal Revenue =

"o:3  rpg5 2&(

Change in TR

#p  qqg0 2&(

Change in Q

$q jr_Q`2&(

$200

%r@@ "#$%PAk#syE[%;p%;[+2]6O)DC!-ȺPWhen Caremore increases quantity sold from 2 tonnes to 3 tonnes a day, total

revenue increases from $500 to $600. This means that the marginal revenue for

the 3rd tonne is $600 - $500 = $100 which is less than $200, the price of the 3rd tonne. Click here to continue.

tJ fuW 2&(

q

u0 fvW{ 2&(

P

vB0 swg7 2&(

Total Revenue

w0 fxWf{ 2&(

1

xj  jy_Q`2&(

$300

yj  tzg9 2&(

300 x 1 = $300

zj  f{Wf{ 2&(

2

{@ j|_Q`2&(

$250

|@ t}g9 2&(

250 x 2 = $500

}@ f~Wf{ 2&(

3

~ j_Q`2&(

$200

 tg9 2&(

200 x 3 = $600

  zoS2&(

Marginal Revenue =

":3  rg5 2&(

Change in TR

#  qg0 2&(

Change in Q

$ yo2&(

$100 = $600 - $500

%R  j_Q`2&(

$200

&@ o{B2&(

For the 3rd tonne, the MR of $100

is less than the price (P) of $200.

' @"#$%&'B 4T2&(

When Caremore increases quantity sold from 3 tonnes to 4 tonnes a day, total

revenue changes from $600 to $600. This means that the marginal revenue for

the 4th tonne is $600 - $600 = $0 which is less than $150, the price of the 4th tonne. Click on point d in the table to display the marginal revenue.

J fW 2&(

q

0 fW{ 2&(

P

B0 sg7 2&(

Total Revenue

0 fWf{ 2&(

1

j  j_Q`2&(

$300

j  tg9 2&(

300 x 1 = $300

j  fWf{ 2&(

2

@ j_Q`2&(

$250

@ tg9 2&(

250 x 2 = $500

@ fWf{ 2&(

3

 j_Q`2&(

$200

 tg9 2&(

200 x 3 = $600

 fWf{ 2&(

4

" j_Q`2&(

$150

# tg9 2&(

150 x 4 = $600

$*!%3/  zoS2&(

Marginal Revenue =

':3  rg5 2&(

Change in TR

(  qg0 2&(

Change in Q

) j_Q`2&(

$200

*@ j_Q`2&(

$100

+@"#$%'()*+PAk!+yE[%;xUNB׭Y̱"WHr |2AK`uxU&bʥ s܌ـQ'6 fUy aD%s_|ɑEa%;wQ*6, s- IsN:u4Kӫ= PEhW4.E-N%(36 ͤttٹ^CXdZB ̐5'n Y2 rh.QApЗ(yF EJzf4J` fW 2&(

q

0 fW{ 2&(

P

B0 sg7 2&(

Total Revenue

0 fWf{ 2&(

1

j  j_Q`2&(

$300

j  tg9 2&(

300 x 1 = $300

j  fWf{ 2&(

2

@ j_Q`2&(

$250

@ tg9 2&(

250 x 2 = $500

@ fWf{ 2&(

3

 j_Q`2&(

$200

 tg9 2&(

200 x 3 = $600

 fWf{ 2&(

4

" j_Q`2&(

$150

# tg9 2&(

150 x 4 = $600

$%3/! zoS2&(

Marginal Revenue =

':3  rg5 2&(

Change in TR

(  qg0 2&(

Change in Q

) yo2&(

$0 = $600 - $600

*  j_Q`2&(

$200

+@ j_Q`2&(

$100

, oB2&(

For the 4th tonne, the MR of $0

is less than the price (P) of $150.

-d  T2&(

When Caremore increases quantity sold from 3 tonnes to 4 tonnes a day, total

revenue changes from $600 to $600. This means that the marginal revenue for

the 4th tonne is $600 - $600 = $0 which is less than $150, the price of the 4th tonne. Click here to continue.

.J@"#$'()*+,-.B fW 2&(

q

0 fW{ 2&(

P

B0 sg7 2&(

Total Revenue

0 fWf{ 2&(

1

j  j_Q`2&(

$300

j  tg9 2&(

300 x 1 = $300

j  fWf{ 2&(

2

@ j_Q`2&(

$250

@ tg9 2&(

250 x 2 = $500

@ fWf{ 2&(

3

 j_Q`2&(

$200

 tg9 2&(

200 x 3 = $600

 fWf{ 2&(

4

" j_Q`2&(

$150

# tg9 2&(

150 x 4 = $600

$ fWf{ 2&(

5

'\ j_Q`2&(

$100

(\ tg9 2&(

100 x 5 = $500

)\*!*k" zoS2&(

Marginal Revenue =

,:3  rg5 2&(

Change in TR

-  qg0 2&(

Change in Q

. j_Q`2&(

$200

/@ j_Q`2&(

$100

0 hW 2&(

$0

1pǠ 7T2&(

When Caremore increases quantity sold from 4 tonnes to 5 tonnes a day, total

revenue changes from $600 to $500. This means that the marginal revenue for

the 5th tonne is $500 - $600 = $-100 which is less than $100, the price of the 4th tonne. Click on point e in the table to display the marginal revenue.

2J@"#$'()*,-./012PAk#yE[=%;𪝈%;}oXsּ.ȋjnWshZ w^1Y!~@2bXezy{8{8'^>hیl (Hs*ʢpb|>SugOgdK>x_`^XCHlZ9 0 DKS@ rrzl|ɑEa%ˆ86 E;miv0 fW 2&(

q

0 fW{ 2&(

P

B0 sg7 2&(

Total Revenue

0 fWf{ 2&(

1

j  j_Q`2&(

$300

j  tg9 2&(

300 x 1 = $300

j  fWf{ 2&(

2

@ j_Q`2&(

$250

@ tg9 2&(

250 x 2 = $500

@ fWf{ 2&(

3

 j_Q`2&(

$200

 tg9 2&(

200 x 3 = $600

 fWf{ 2&(

4

" j_Q`2&(

$150

# tg9 2&(

150 x 4 = $600

$ fWf{ 2&(

5

'\ j_Q`2&(

$100

(\ tg9 2&(

100 x 5 = $500

)\*k# zoS2&(

Marginal Revenue =

,:3  rg5 2&(

Change in TR

-  qg0 2&(

Change in Q

. zos2&(

$-100 = $500 - $600

/\ j_Q`2&(

$200

0@ j_Q`2&(

$100

1 hW 2&(

$0

2pǠ w02&(

For the 5th tonne, the MR of $-100

is less than the price (P) of $100.

3۝ T2&(

When Caremore increases quantity sold from 4 tonnes to 5 tonnes a day, total

revenue changes from $600 to $500. This means that the marginal revenue for

the 5th tonne is $500 - $600 = $-100 which is less than $100, the price of the 4th tonne. Click here to continue.

4J@   "#$%'()*,-./01234 Hw}2(

REVENUE BEHAVIOUR

Monopoly Firm's Marginal Revenue

Since, for a monopoly firm, price and quantity demanded are inversely related (price searcher), the firm's marginal revenue will be below the firm's price, for each quantity level.

Graphically, the marginal revenue curve is downward sloping and is below the firm's demand curve.

One way to understand why marginal revenue (MR) is below price (P), is to realize that when the monopolist sells an additional unit at the new lower price, this new lower price must also apply to all previous units (which were originally sold at a higher price).

In Figure 2 we illustrate this relation between marginal revenue and price for a monopoly firm.

 # 02(

Figure 2c: Marginal Revenue Curve is Below the Demand Curve

 @E 6 V22&(

Figure 2b showed that when a firm such as Caremore has market power

over price, the marginal revenue (MR) is less than the price (P), for each

quantity level. Graphically, this means that the firm's marginal revenue curve

will lie below the firm's demand (price) curve.

 Xy łt%t{%Qyj'mAs,p/ ;hW4.C1NJ0!@'L"pF/x fW "&(

q

 fW{ "&(

P

 gW{ "&(

MR

 fWf{ "&(

1

  j_Q`"&(

$300

  fWf{ "&(

2

V@ j_Q`"&(

$250

V@Mf $ j_Q`"&(

$200

V@ ?T倭"&(

If Caremore increases daily output from 1 to 2 tonnes a day, click on point b in the table below, to see the relation between price (P) and marginal revenue (MR) for the 2nd tonne graphically.

J _TaB"&(

$ per

tonne

 j_Q`"&(

$250

[` j_Q`"&(

$200

˜@ you"&(

q = tonnes per day

h fW_ "&(

2

 fW_ "&(

1

 `@ PexcL%dy ŧCO"eɜ2o4*`hMֻ&e-$>L[~W*gJټ-KW:TDA MP tD̶eک?k֝^Zsg(;Lg2 rSD( x˳F XfGM`i59.e,}\__t.[3z`%U#HtG>r%IP@KR]8A'3r҉~ɽ7.VtOG@U^=?DgDS/Dk&`\b  0 M*Ar{*pF/x ;hZ=8i  I1Hhϧg5` L3i14x F @3ͤ4ggӳb0`&IFm 6s;>F-G/BL3i1l< F @q:vy<ZZ# ͤ;胊 gӳz10mFm lp/CM3i14xR6zYlv};<Gf+Ц26 6s;>F֣ցhW) QHw9N#GkQ@@BTʌ@#@ lv};<G.~S(ͤ4ggӣѰ z10m%L69N#GkQ@` B2@#@ lv};<G/DU>F-Gfcg3zCIHhϧG`}'<gԣ ͤ4eJ?e0`ڌ@3vy<Zϩgs}J0`ڌ@#@ lpN 3h k>0mFm 6s8F0`ڌ@3vy<Zϩ`pD3wk9R-Gh@V}J=kѣрtf2iS>ͤ4ggӳz10mS>@#@ lv};0mFm 6s8'~ `gq4xSϦ瑣5`Fw/1fggӳ}LK>FֳQfcg3pPއM#GkY(j3i11fggӳ}L+~̀6 !͌@3Y,yj<FFQXxg31 sLw21fggӳ}LK>FֳQfcg3pQއ@ QHw9N#GkY1,ny<ZϩF QHh GzE0mFm lv};<gijh k>0mFm 6s8' ~H4xR669#0mFm lv};<g°qއשgs}J0`ڌ@#@ lp`gq4xS zk`gq4xSϦ瑣5`Fw7x1fggӳ}LK>FֳQfcg3pP^ !͌@3Y,yj<FFQXxg31 sLw9 Y4xR669#0mFm lv};<g°qއIgs}J0`ڌ@#@ lp`gq4xS  fW 2&(

q

 fW{ 2&(

P

 gW{ 2&(

MR

 fWf{ 2&(

1

  j_Q`2&(

$300

  fWf{ 2&(

2

V@ j_Q`2&(

$250

V@f % j_Q`2&(

$200

V@ TE2&(

When output goes from 1 to 2 tonnes a day, the drop in price from $300 to $250 causes marginal revenue (MR) to be below price (P). Click here to continue.

J _TaB2&(

$ per

tonne

 n g# 2&(

P = $250

 עV` n g( 2&(

MR =$200

  oaB2&(

For the 2nd tonne,the MR of $200

is less than the price (P) of $250.

 yh y ou2&(

q = tonnes per day

 h f W_ 2&(

2

  fW_ 2&(

1

!`@ !y ťt!Ir4,f5.cVKllԠ-)@JbJ T Ѡ e1s[`3f.`liMeJ׭(9{#Qyj'mAs,p/ ;hW4.C1N0!KNE fW 2&(

q

 fW{ 2&(

P

 gW{ 2&(

MR

 fWf{ 2&(

1

  j_Q`2&(

$300

  fWf{ 2&(

2

V@ j_Q`2&(

$250

V@ fWf{ 2&(

3

” j_Q`2&(

$200

n& j_Q`2&(

$200

V@ j_Q`2&(

$100

Ҕ -T倭2&(

If Caremore increases daily output from 2 to 3 tonnes a day, click on point c in the table below, to see the relation between price (P) and marginal revenue (MR) graphically.

J j_Q`2&(

$250

 bS j_Q`2&(

$200

!b j_Q`2&(

$150

"b͠ j_Q`2&(

$100

#c  _TaB2&(

$ per

tonne

$  y!ou2&(

q = tonnes per day

%!h f"W_ 2&(

2

&" f#W_ 2&(

3

'#t f$W_ 2&(

1

($`@ !"#$%&'(Pexc'%y ťO"Ir4,f5.cVKllԠ-)@Jb OPT%LѹMOIx.cVKllaV!^s(ٍKՠj\Zy5( S4nSF%5ρ=,ʖxV~W]8פ1MԔy̴U2Ԡ-"Կu~T Ѡ Mz50:y@8(eʃaM).6Ma4p&乖C r~*a@3? *J%J]ʒgD =D{ T`%U#HtG>r%IP@KR]8A'3r{v<+G"r*p(4.OaD:^-(L"r- ]J1Hhϧg5b0`}Jg3h k>0mFm 0/DzT*3i16yj=h6z+ҡYvy< F QHh T*3i14x F @)Pv};F-G/B"T*3i14x F @)Pͤ4ggӣѰ z10mpB4x F QHh ggӳz10mFm 0/HUc9N#GkQ@`F![x9N#GkQ@`􉥈s4x F QHh &ggӳz10mFm 0/H[9N#GkQ@`FB69N#GkQ@` T+9NF3Y(j3i1s,eQHhϧg5b0`ϰϧg5b0`ڌ@#@ a^ĺkFvy<ZZ# ^4ny<ZZ# ͤ4ggӁzE3y4x F QHhLeQHhϧg5b0`Leg3yk>0mFm 0/G"c*3i16yj=h6zD.s;>F֣ցj3i1zDvy<ZZ# ͤ4̊Q6s;>F-Gf+&Bs4x F QHh+"~69N#gցhWS3hӳz10mFm 6s8WE3Fm 6s;>F-GЯHhaϧg5b0`ڌ@#@ lpHi@#@ lv};q

& f'W{ 2&(

P

' g(W{ 2&(

MR

( f)Wf{ 2&(

1

)  j*_Q`2&(

$300

*  f+Wf{ 2&(

2

+V@ j,_Q`2&(

$250

,V@ f-Wf{ 2&(

3

-” j._Q`2&(

$200

.' j/_Q`2&(

$200

/V@ j0_Q`2&(

$100

0Ҕ 1_TaB2&(

$ per

tonne

1 f2W_ 2&(

2

 2 f3W_ 2&(

3

!3t f4W_ 2&(

1

"4` y5ou2&(

q = tonnes per day

#5h 6TE2&(

When output goes from 2 to 3 tonnes a day, the drop in price from $250 to $200 causes marginal revenue (MR) to be below price (P). Click here to continue.

$6J 7oB2&(

For the 3rd tonne,the MR of $100

is less than the price (P) of $200.

%7yh n8g# 2&(

P = $200

&8B` n9g( 2&(

MR =$100

'9@ !"#$%&':y ťt!lrʔ7)@6cR5hf.\-Jټ½J T Ѡ e1s[`3f.`liMeJW *˗0 Ro4*`hMԹZ-:dvj/-DɯHdK0 Ro4*`hMԹZ-Y(<)gKZ9 0 AS@r{ t'iiF:ah: f;W 2&(

q

; f<W{ 2&(

P

< g=W{ 2&(

MR

= f>Wf{ 2&(

1

>  j?_Q`2&(

$300

?  f@Wf{ 2&(

2

@V@ jA_Q`2&(

$250

AV@ fBWf{ 2&(

3

B” jC_Q`2&(

$200

C fDWf{ 2&(

4

D΀ jE_Q`2&(

$150

E΀rߠ( jF_Q`2&(

$200

!FV@ jG_Q`2&(

$100

"GҔ hHW 2&(

$0

#H ΀ I_TaB2&(

$ per

tonne

$I jJ_Q`2&(

$250

%JbS jK_Q`2&(

$200

&Kb jL_Q`2&(

$150

'Lb͠ jM_Q`2&(

$100

(Mc  yNou2&(

q = tonnes per day

)Nh fOW_ 2&(

2

*O fPW_ 2&(

3

+Pt fQW_ 2&(

4

,Qh fRW_ 2&(

1

-R` ?ST倭2&(

If Caremore increases daily output from 3 to 4 tonnes a day, click on point d in the table below, to see the relation between price (P) and marginal revenue (MR) for the 4th tonne graphically.

.SJ@!"#$%&'()*+,-.Pdct)Ty ť!Ir4,f5.cVKllԠ-)@JbJ T Ѡ e1s[`3f.`liMeJW )k*PhܦK(ٍKՠ4s( f:D]j6lyj&MXr^(T%LѹMP 1@%6irjP5̲PxRΗ5w)@[7SYR0F4hY@&j\ƭ̴U2ЯLs% bȵ/_0F]`01ioLsg٩MJT f`l[;f p=:a4{\0ȴ m 6s;>F֣ցhe-ϧgQ@`Fioͤ4ggӳb0`DKFm 6s;>F֣ցhu-Fvy<ZZ# ^Էs;>FֳQfcG69N#gցh-ϧgQ@`F)oͤ4ggӣѰ z10mp4x F QHh @#@ lv};<G/Hb[3i14x F @$oͤ;ϧg5b0`EKg3yj=h66]-Ftz6ZZ# ^ts;>F֣ցj3i1sFm 6s;>F֣ցh?:s;>gQfc ͜ƣ69NF3Q@` sZ0`ڌ@#@ lv};<G alvy<ZZ# ͤ4g12#69NF3Y(h9cg3h j=h66^XDfcg3lz10mY0@ lv};F֣ցh9cg3h j=h66^Dfcg3h k>0m ĥͤ4ggӳz10m%69N#gցh0Fvy< F @4Ihͤ4ggӳb0`LeFm 6s;>F-G/MJd9N#gցj3i1zjS2Yvy< F QHh D@#@ lv};F-G/Mq:3i16yj=h6zcfcg3h j=h6zjSNs;>F-GfcT fUW 2&(

q

U fVW{ 2&(

P

V gWW{ 2&(

MR

W fXWf{ 2&(

1

X  jY_Q`2&(

$300

Y  fZWf{ 2&(

2

ZV@ j[_Q`2&(

$250

[V@ f\Wf{ 2&(

3

\” j]_Q`2&(

$200

] f^Wf{ 2&(

4

^΀ j__Q`2&(

$150

_΀rߠ) j`_Q`2&(

$200

!`V@ ja_Q`2&(

$100

"aҔ hbW 2&(

$0

#b ΀ c_TaB2&(

$ per

tonne

$c jd_Q`2&(

$250

%dbS je_Q`2&(

$200

&eb yfou2&(

q = tonnes per day

'fh fgW_ 2&(

2

(g fhW_ 2&(

3

)ht fiW_ 2&(

4

*ih fjW_ 2&(

1

+j` kTE2&(

When output goes from 3 to 4 tonnes a day, the drop in price from $200 to $150 causes marginal revenue (MR) to be below price (P). Click here to continue.

,kJ loB2&(

For the 4th tonne,the MR of $0

is less than the price (P) of $150.

-lyh nmg# 2&(

P = $150

.mB` ln_}`2&(

MR =$0

/nك@!"#$%&'()*+,-./PJg4oy ť" :qJ\ƭ ٥˘@[7)ᅶܷ@&Xlh@g.coEF.zbJcR hܦK j] IMfJT Ѡ d̕0̉CR$W0F4hY@&kMh|O2$^@0F4hY@&kM(|[m2$C0F]`0zע*ꊖ ٥˘@[7;aGz!©UIe=& %j m͚\Zy'ޙ @=wQyj'mKzAS1) e٩MJZ^2y@<)gKE) e٩MJT fȘޛAlƳx}9Al@&6jSFK1O`xVEyL3TP8i\0t.ZQDZo fpW 2&(

q

p fqW{ 2&(

P

q grW{ 2&(

MR

r fsWf{ 2&(

1

s  jt_Q`2&(

$300

t  fuWf{ 2&(

2

uV@ jv_Q`2&(

$250

vV@ fwWf{ 2&(

3

w” jx_Q`2&(

$200

x fyWf{ 2&(

4

y΀ jz_Q`2&(

$150

z΀ j{_Q`2&(

$200

!{V@ j|_Q`2&(

$100

"|Ҕ h}W 2&(

$0

#} ΀ A~T倭2&(

If you join all the price and marginal revenue points, you can see that the marginal revenue will be below the demand (price) curve at each quantity, in the case of monopoly. Click here to continue.

$~J _TaB2&(

$ per

tonne

% j_Q`2&(

$250

&bS j_Q`2&(

$200

'b j_Q`2&(

$150

(b͠ j_Q`2&(

$100

)c  you2&(

q = tonnes per day

*h fW_ 2&(

2

+ fW_ 2&(

3

,t fW_ 2&(

4

-h fW_ 2&(

1

.` ng$ 2&(

MR Curve

/l rg5 2&(

Demand Curve

08 Loိ2&(

In monopoly, the firms' marginal

revenue curve is below the

demand (price) curve.

1yh@  !"#$%&'()*+,-./01 Hw}2(

REVENUE BEHAVIOUR

Monopoly Firm's Marginal Revenue

Since, for a monopoly firm, price and quantity demanded are inversely related (price searcher), the firm's marginal revenue will be below the firm's price, for each quantity level.

Graphically, the marginal revenue curve is downward sloping and is below the firm's demand curve.

One way to understand why marginal revenue (MR) is below price (P), is to realize that when the monopolist sells an additional unit at the new lower price, this new lower price must also apply to all previous units (which were originally sold at a higher price).

In Figure 2 we illustrate this relation between marginal revenue and price for a monopoly firm.

 # /om0&(End of Figure 2  m@  ? +@,S3Odd, oO2&(

Click here to exit Figure 3

 3ypSF%F=4%ˆ)Av+p( 2(

Figure 3: Monopolist Operating at an Economic Profit: Unit Approach

 l  k_ိ2&(

You are the cost accountant in charge of the XCold drug product line for Caremore

Ltd. Your task is to answer the 4 SR questions for the firm for the month of June,

given the June market demand curve and given the unit costs (per tonne costs).

  oy2&(

q = tonnes of pills per day

 _TaB2&(

$ per

tonne

 w}`2(

SHORT-RUN BEHAVIOUR

MONOPOLY

Operate at a Profit: Unit Approach

In Figure 3 we will illustrate the "operate at a profit" situation. We will use the Unit Approach to answer the 4 SR questions, as follows:

Q1: Operate this period? Yes, if price can exceed average variable cost.

Q2: If it operates, continue to expand quantity whenever marginal revenue exceeds marginal cost. In theory, the best quantity, q*, is that quantity where MR equals MC.

Q3: The best price, P*, is that price consistent with best quantity, q*, according to the firm's demand curve.

Q4: The best total dollar profit is: At q*, compute: (P* - ATC*) x q*

#$ypd(((%M*8BFƕ.lh^T{zEx#%ː4!%ggӳz10mFm 0.e3ͤ4ggӳz10mZ@#@ lv};<G.e@hͤ4ggӳz10majggӳz10mFm 0.fN4x F QHhϧZ2@#@ lv};<G.eYhͤ4ggӳz10mZ@#@ lv};<G.fev};<Gfca#GkQ@`Fp.er9N#GkQ@`Z@#@ lv};<G.e~ͤ4ggӳz10maRggӳz10mFm 0.f,4x F QHhϧ^14x F QH.eͤ4ggӳz10mZ@#@ lv};<G.flv};<Gfca#GkQ@`Fp.eᰈ9N#GkQ@`Zr@#@ lv};<G.ehͤ4ggӳz10ma:ggӳz10mFm 0.eͤ4ggӳz10ma#GkQ@`Fp.ehͤ4ggӳz10mZʌ@#@ lv};<G.eͤ4ggӳz10mԍ14x F QH.\-v};<Gfcg3h j=h66\BZ6s;>F-Gf KR4ggӣѰ }J0`ڌ@smg3h j=h66 rg1? 2&(

Price = $300

J` fWf{ 2&(

1

; fWf{ 2&(

2

@ fWf{ 2&(

3

@ fWf{ 2&(

4

l fWf{ 2&(

5

 pg+ 2&(

AVC = $100

7  dwH2&(

We assume economies of scale where

ATC continually declines. This implies that

MC is constant and equal to AVC.

H ug&O `2(

MC = AVC

H w2&(

In monopoly, the industry demand curve for

June equals the firm's demand (price) curve

ρ` mWt `2(

D

ł+  S_퀭2&(

Question 1: Should Caremore operate or shutdown in June? Answer: Operate

Since there are quantities such as q =1 where the demand curve is above AVC

(Price exceeds AVC), Caremore should operate. Click here to continue.

 !@  S3Ny - oO2&(

Click here to exit Figure 3

f 0PůwY([4 ;S\3J'j`tlLa)TQ%ܽsݤ54'BFƕ6zIsj,X@*T@ eIVT|W,b ggӳz10mFm 0.w% v};1

k fW_ 2&(

2

+@ fW_ 2&(

3

K@ fW_ 2&(

4

@ fW_ 2&(

5

d ug&O `2(

MC = AVC

H mWt `2(

D

ł+  gW 2&(

MR

  T逭2&(

Question 2: What quantity level should Caremore produce in June? Answer:

The most profitable quantity is at 3 tonnes per day, where MR = MC.

Click here to continue.

!@ mg" 2&(

MR = MC

ŃT gW{ 2&(

q*

u1 _osိ2&(

To find the best q, first find where

MR = MC. Then drop down to the

quantity axis to find q* = 3 tonnes.

 Z@ +@.S3OVcyod((´k^0`>bt!yFkkiR4d/ѕpyq[kiR$D@0K}2r!n^,i.qǽg%M*Ъ$C͞\Q}JUIsj,X@*T@ eIVT|W,b\[Jm_-ϧg5`F\˒Yvy<ZZ# ͤ4R-N#gցj3i16yj=h667\fcg3h j=h6sm@gӳz10mFm 6s86}:=-Gfcg3s9Fm lv};<G.ph vy<ZZ# ͤ4gOr@#@ lv}:=-G.sh tz6ZZ# ͤ4grVggӳb0`ڌ@#@ `\Btz6ZZ# ͤ4/NF3Q@`F\Btz6ZZ# ͤ40NF3Q@`F\sYl< F QHh2=NF3Q@`F\s0Yl< F QHh3ϧG`b0`ڌ@#@ `\sIYl< F QHh ϧg5b0`ڌ@#@ `\CTtz6ZZ# ͤ4ќϧg5b0`ڌ@#@ `\;yvy<ZZ# ͤ4}N#GkQ@`F\kY4x F QHhܹcg3h j=h66\kY4x F QHh㻁ϧg5b0`ڌ@#@ `\kY4x F QHhϧg5b0`ڌ@#@ `\QHhϧG`` Y9N#GkQ@`F69N#gցh/fcg3h j=h6sK9Fm 6s;>F֣ցh1Ts;>F-Gfc fW_ 2&(

1

k fW_ 2&(

2

+@ fW_ 2&(

3

K@ fW_ 2&(

4

@ fW_ 2&(

5

d ug&O `2(

MC = AVC

H mWt `2(

D

ł+  gW 2&(

MR

  T퀭2&(

Question 3: What is the best price, P* to charge? Answer: The demand curve tells the monopoly firm that it can charge a price of $200 per tonne, at the

best quantity of 3 tonnes per day. Click here to continue.

!@ mg" 2&(

MR = MC

ŃT gW{ 2&(

q*

u1 w2&(

At q* = 3 tonnes, draw a vertical line up to the demand curve and note, from the vertical scale, that the best price is $200

 Z rg-G 2&(

Price = $200

!¾@ !?S3O\ch?4ypSFfM ,U\=X 2(

Figure 3: Monopolist Operating at an Economic Profit: Unit Approach

 l  k_ိ2&(

You are the cost accountant in charge of the XCold drug product line for Caremore

Ltd. Your task is to answer the 4 SR questions for the firm for the month of June,

given the June market demand curve and given the unit costs (per tonne costs).

  oy2&(

q = tonnes of pills per day

 _TaB2&(

$ per

tonne

 w}`2(

SHORT-RUN BEHAVIOUR

MONOPOLY

Operate at a Profit: Unit Approach

In Figure 3 we will illustrate the "operate at a profit" situation. We will use the Unit Approach to answer the 4 SR questions, as follows:

Q1: Operate this period? Yes, if price can exceed average variable cost.

Q2: If operates, continue to expand quantity whenever marginal revenue exceeds marginal cost. In theory, the best quantity, q*, is that quantity where MR equals MC.

Q3: The best price, P*, is that price consistent with best quantity, q*, according to the firm's demand curve.

Q4: The best total dollar profit is: At q*, compute: (P* - ATC*) x q*

#ypd(((%.(wۅ)`"R{b; Hʀ rҘ0T1zk \wFֶ#OJ}W .6"Adbp;\i\M-tIbMxH0B:6&0(n^y\c{KTX TIz#cJ=Z :j]Ҁ}QdB, *KRR*>+ J`τ ,gӳz10mFm 6s840hϧg5b0`ڌ@s,6gӣѰ z10mFm 6s85 f};<Gfcg3sZK/Fm lv};<G.maftz6ZZ# ͤ4gX1l< F QH.pfvy<ZZ# ͤ4gX14x F QH.sfvy< F QHhΜ,ggӳz10mFm 3h j=h669+ZggӣѰ z10mFm 0.w9otz6ZZ# ͤ4grNggӣѰ z10mFm 0.w9Ltz6ZZ# ͤ4gsϧG`b0`ڌ@#@ lp.rhͤ4ggӳz10m@ggӳz10mFm 0.w9tz6ZZ# ͤ4gZϧg5b0`ڌ@3\Ctz6ZZ# ͤ42!ϧG`b0`ڌ@#@ `\s0Yl< F QHhӳח0`ڌ@#@ lvJ}:=-GFs%dJӣѰ z1o/`F\;`vy<ZZ# ͤ45AϧG`b0`ڌ@#@ `\׃ћHhϧgQ@` pb9N#gցj3i1sw [Fm 6s;>gցh8pŶs;>F֣ցj3i1s, [Fm 6s;>F-G.glv};<Gfc@#@ lv};<G.j1hͤ4ggӳ}J0`ќϧg5b0`ڌ@#@ `\;yvy<ZZ# ͤ4}N#GkQ@`F\kY4x F QHhܹcg3h j=h66\kY4x F QHh㻁ϧg5b0`ڌ@#@ `\kY4x F QHhϧg5b0`ڌ@#@ a\͖};<Gfcg3rK/Fm 6s;>F֣ցh0d`Fvy<  ^ggӳ}J0`ڌ@#@ `\vy< F QHh+bٌ@#@ lv};<G.aAlv}:=-gԣ ͤ4L1mFvy<ZZ# \vy< F QHh lb3ig3h j=h6 fW_ 2&(

1

k fW_ 2&(

2

+@ fW_ 2&(

3

K@ fW_ 2&(

4

@ fW_ 2&(

5

d ug&O `2(

MC = AVC

H mWt `2(

D

ł+  gW 2&(

MR

  T逭2&(

Question 4: What maximum $ profit is possible? Answer: Total profit equals

(Profit per unit) x (best q) = (P*-ATC*) x (best q) = ($200 - $166) x 3 tonnes = $102 = Area of Shaded Green Rectangle. Click here to continue.

!@ mg" 2&(

MR = MC

ŃT gW{ 2&(

q*

u1 og# 2&(

P* = $200

  i_B`2&(

ATC

!` i_B`2&(

ATC

"8 qg- 2&(

ATC* = $166

##` w)(2&(

Area of the green rectangle below is:

height x width = (P*-ATC*) x q* =

profit per tonne x number of tonnes =

$34 x 3 = $102 = total profit

$@ !"#$ w}`2(

SHORT-RUN BEHAVIOUR

MONOPOLY

Operate at a Profit: Unit Approach

In Figure 3 we will illustrate the "operate at a profit" situation. We will use the Unit Approach to answer the 4 SR questions, as follows:

Q1: Operate this period? Yes, if price can exceed average variable cost.

Q2: If operates, continue to expand quantity whenever marginal revenue exceeds marginal cost. In theory, the best quantity, q*, is that quantity where MR equals MC.

Q3: The best price, P*, is that price consistent with best quantity, q*, according to the firm's demand curve.

Q4: The best total dollar profit is: At q*, compute: (P* - ATC*) x q*

# /om0&(End of Figure 3 m@ ? @<01PKe1 oO2&(

Click here to exit Figure 4

 *y]FyNj(%Սdܵ倜` _[a[2&(

$ per

tonne

 @ w  02(

Figure 4: Monopoly in the Long-run

 l  o2&(

q = 00's tonnes per month

HH w}P2(

LONG-RUN BEHAVIOUR

MONOPOLY

As an industry matures, the long-run behaviour in a monopoly situation is quite different than the long-run behaviour in a perfectly competitive situation.

Recall that, in the long-run in perfect competition, the firm earns a normal profit. Also, the firm is both productively efficient and allocatively efficient.

In contrast, Figure 4 illustrates that a monopoly firm often can enjoy positive or "excess" profits in the long-run. As well, there is no guarantee that the firm will be productively efficient. Moreover, for the last unit produced, the price exceeds marginal cost so the firm restricts ouput and is allocatively inefficient.

#r!(((%.L׉bq6r\ݪG2q/#$hkG]3-SHszQgHiy:G3dX0R׋>2&%#UPQ }_˾%["m5/&OdWh\Z(yԕ>KXY  l_M_`2&(

Price

`@ gW 2&(

MC

j i_B`2&(

ATC

J` fW_ 2&(

5

k fW_ 2&(

4

@ fW_ 2&(

3

ʛ@ hW 2&(

MR

Kg p_倭2&(

What quantity will the new monopoly firm produce per month? Answer:

Assuming that the firm wants to maximize total profit, the best quantity will be ____

tonnes per month? Click here to continue.

iH o2&(

Great East Monopoly Firm

 u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

 @ PXf2 oO2&(

Click here to exit Figure 4

f 0Pů'Hl&RJCc\:q5jE@D\ڒ&;^4mƠm5UjJ*4F^M!BkdHD Ke 1A)EED^ɴ@\:}rdIs5L.u%O2ggӣѰ z10mFm 0.fYHͤ4ggӣѰ z10ml8ggӣѰ z10mFm 0.fYͤ4ggӣѰ z10me@#@ lv}:=-G.fYHͤ4ggӣѰ z10meȌ@#@ lv}:=-G.fv}:=-Gfce@#@ lv}:=-G u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

  gW{ 2&(

q*

# l_M_`2&(

Price

`@ gW 2&(

MC

j i_B`2&(

ATC

J` fW_ 2&(

5

k fW_ 2&(

4

@ fW_ 2&(

3

ʛ@ hW 2&(

MR

Kg _?逭2&(

What quantity will the new monopoly firm produce per month? Answer:

Assuming that the firm wants to maximize total profit, the best quantity will be 300

tonnes per month, where MR = MC. Click here to continue.

iH o2&(

Great East Monopoly Firm

@Py=Pzr!((%̪(udK]Q:%.%d s|{>`؜M\7Va\^Y+}^N+V0Lƹu:k">@ 0zȚԗ̌{IU@CYG -/$*r1HyV\U*:W;p"sq kdHsD Ke .L˽ dhY:(ggӣѰ z10mFm 0.fYFͤ4ggӣѰ z10mlggӣѰ z10mFm 0.fRv}:=-Gfce@#@ lv}:=-G.f_v}:=-GfceU@#@ lv}:=-G.f)ktA-QHhϧG`c>F֣ցj3i1s6K3yj=h663, fcg3yj=h6s6K3yj=h663,Lfcg3yj=h6s2Vm 6s;>gցh3,Ȍfcg3yj=h6s6Lg3yj=h663,Τfcg3yj=h6s6Mg3yj=h663,fcg3yj=h6s2NFm 6s;>gցh3,$fcg3yj=h6s2Fm 6s;>gցh3dfs;>gցj3i1s2HFm 6s;>gցh+$fcg3h k>0mָggӳz10mFm 0.dC9NF3Q@`/>g3h j=h66\҇Ѡ6s;>F֣ցj3i(ϧg5b0`ڌ@#@ `\Ѡ6s;>F֣ցj3i˗(}cg3yj=h66\RѠ6s;>F-Gf tQ9N#gցj3i1r\g3yj=h66,w9N#GkQ@`V14x F QH.\k(9NF3Q@`ָggӳb0`ڌ@#@ `\jQ6s;>F֣ցj3i̓qϧg5b0`ڌ@#@ `\ŪYlv};<Gf l_M_`2&(

Price

`@ gW 2&(

MC

j i_B`2&(

ATC

J` fW_ 2&(

5

k fW_ 2&(

4

@ fW_ 2&(

3

ʛ@ hW 2&(

MR

Kg hW{ 2&(

$90

t@ hW{ 2&(

$60

@ 倭2&(

Will this monopoly firm just make normal profits (like in perfect competition)?

Answer: The maximum profit that this firm can make is $ ______?

Click here to continue.

iH gW{ 2&(

q*

# o2&(

Great East Monopoly Firm

 u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

  @ PZLj?rO!f6((# ( F ߨA[RPy6d3-SH`H2Fձ]\"+zϽx6'nW-ï GV kN|\> G]M,- 4FGnXh ΕjfyV\U*6vZWSs1o7IHl e]ๆ%yKQq"\瘯T>u%Ohg<$| (ggӣѰ z10mFm 0.fYFͤ4ggӣѰ z10mlggӣѰ z10mFm 0.fRv}:=-Gfce@#@ lv}:=-G.f_v}:=-GfceU@#@ lv}:=-G.ekv}:=-Gfce@#@ lv}:=-G.fqv}:=-Gfce@#@ lv}:=-G.f~\v}:=-GfceI@#@ lv}:=-G.fYͤ4ggӣѰ z10me@#@ lv}:=-G.fɗ v}:=-GfceԌ@#@ lv}:=-G.fɣv}:=-Gfce@#@ lv}:=-G.fYͤ4ggӣѰ z10med@#@ lv}:=-G.fYͤ4ggӣѰ z10ml,ggӣѰ z10mFm 0.fYͤ4ggӣѰ z10m}D@#@ lv};<gԣ \vy<ZZ# ͤ4̑(}cg3yj=h66\lv};<Gf ZP4ggӳz10mFm E34x F QHh P4ggӳz10mFm r@ lv}:=-Gf P4ggӳb0`ڌ@rΊ"g3lz10mFm 0.Zk(9N#GkQ@`ggӳz10mFm 0.]k(9NF3Q@`ggӳz10mFm `\2Q6s;>F֣ցj3i-ecg3yj=h66\jQ6s;>gցj3i\-qϧg5b0`ڌ@#@ ` o2&(

Great East Monopoly Firm

 l_M_`2&(

Price

`@ gW 2&(

MC

j i_B`2&(

ATC

J` f W_ 2&(

5

 k f W_ 2&(

4

 @ f W_ 2&(

3

 ʛ@ h W 2&(

MR

 Kg l _m`2&(

P*=$90

 t@ ng% 2&(

ATC*=$60

@ q2&(

Will this monopoly firm just make normal profits (like in perfect competition)?

Answer: The maximum profit that this firm can make is $9000 in excess of

a normal profit. The monopoly firm can continue to earn this excess profit

in the long-run due to barriers to entry. Click here to continue.

iH o2&(

At the best quantity of 300 tonnes,

the profit maximizing price is

P*= $90 and the corresponding

average total cost = ATC* = $60.

The maximum profit is:

profit per tonne x # tonnes

or ( $90 - $60) x (300) = $9000.

This $9000 = area of green

rectangle.

X gW{ 2&(

q*

 # u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

! @ !Pz%P l_M_`2&(

Price

`@ gW 2&(

MC

j i_B`2&(

ATC

J` fW_ 2&(

5

k fW_ 2&(

4

@ fW_ 2&(

3

ʛ@ hW 2&(

MR

Kg l_m`2&(

P*=$90

t@ ng% 2&(

ATC*=$60

@ 倭2&(

Will this monopoly firm be productively efficient? Answer: First we should

note that the productively efficient quantity level = _____ tonnes per month?

Click here to continue.

iH o2&(

Great East Monopoly Firm

 gW{ 2&(

q*

# u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

  @ P_eC r!((%̪(udK]Q:%.%d s|{>`؜M\7`:WKwHnc_:t&*/ڰ$ u;PJ MtyƮQ9ң\ڒi*rk(ᅾaZcNA6*B6v\Hd` %=8o\C7.n!~Ԓ3T71r)$mA6Ke*}(ggӣѰ z10mFm 0.fGv}:=-Gfce@#@ lv}:=-G.fYTxͤ4ggӣѰ z10me@#@ lv}:=-G.f`v}:=-Gfces@#@ lv}:=-G.f)kv};<Gfce׌@#@ lv}:=-G.nIͤ4ggӳz10mT@#@ lv};<G.nIHb0`ڌ@#@ lv};<14x F QH.k yͤ4ggӳz10m林ggӳz10mFm 0.gyͤ4ggӳz10me;@#@ lv}:=-G.eyv};<Gfce@#@ lv}:=-G.f~\v}:=-GfceI@#@ lv}:=-G.fYͤ4ggӣѰ z10mlggӣѰ z10mFm 0.fYͤ4ggӣѰ z10meԌ@#@ lv}:=-G.fɣv}:=-Gfce@#@ lv}:=-G.fYͤ4ggӣѰ z10m䙀@#@ lv};<G.nLv};<GfcH@#@ lv};<G.nIb0`ڌ@#@ lv};< 14x F QH.nIHͤ4ggӳz10mggӳz10mFm 0.nIͤ4ggӳz10m뜠ggӳz10mFm 0.fYHͤ4ggӣѰ z10meȌ@#@ lv}:=-G.fv}:=-Gfce@#@ lv}:=-G.WDHͤ4ggӳ}J0`qϧg5b0`ڌ@#@ `\Ѡ6s;>gցj3i_(}ggӳz10mFm @ lv};<Gf Q9N#GkQ@`Fy%@ lv};<Gf .P4ggӣѰ z10mFm l@ lv};F-GfcָggӣѰ z10mFm 0.Yuk,6s;>F֣ցj3iĭecg3h j=h66\*Q6s;>gցj3i/qϧgQ@`F~լ@ lv};<Gf 'Z9N#GkQ@`FUvy<ZZ# ͤ1fcg3h j=h6s3yj=h660lfcg3lz10m@#@ lv};F-G  l!_M_`2&(

Price

!`@ g"W 2&(

MC

"j i#_B`2&(

ATC

#J` f$W_ 2&(

5

$k f%W_ 2&(

4

%@ f&W_ 2&(

3

&ʛ@ h'W 2&(

MR

'Kg l(_m`2&(

P*=$90

(t@ n)g% 2&(

ATC*=$60

)@ *w2&(

Will this monopoly firm be productively efficient? Answer: First we should

note that the productively efficient quantity level = 500 tonnes per month

where ATC is at a minimum at $53 per tonne. Click here to continue.

*iH +o2&(

Great East Monopoly Firm

+ q,g0 2&(

min ATC=$53

, g-W{ 2&(

q*

 -# .g*2&(

q

productively

efficient

!.۳@ /u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

"/ @ !"P\|jT l0_M_`2&(

Price

0`@ g1W 2&(

MC

1j i2_B`2&(

ATC

2J` f3W_ 2&(

5

3k f4W_ 2&(

4

4@ f5W_ 2&(

3

5ʛ@ h6W 2&(

MR

6Kg l7_m`2&(

P*=$90

7t@ n8g% 2&(

ATC*=$60

8@ u9-2&(

Will this monopoly firm be productively efficient? Answer: Since this monopoly

firm will operate at the profit maximizing output level of 300 tonnes, it will not

be productively efficient. Since there are no close substitute products, there

is no long-run pressure to minimize ATC. Click here to continue.

9iH :o2&(

Great East Monopoly Firm

: q;g0 2&(

min ATC=$53

; g<W{ 2&(

q*

 <# =g*2&(

q

productively

efficient

!=۳@ >u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

">  5?o2&(

The monopoly firm will operate

at q = 300 tonnes, where it

maximizes profit (MR =MC).

At 300 tonnes the ATC = $60

which is higher than the

min ATC of $53 per tonne.

The firm is not producing at the

minimum cost per tonne.

#?x @ !"#P{@r!((%.oSxm乺>'Dľ8nuIszQgHiy:G3tʖD0$65ͣ3-SH ;^.@+#\\ڒUPQm!6UjJ*iq+p"sq 4ȑΕjf0y.]32o/.5E%2*|@ lA_M_`2&(

Price

A`@ gBW 2&(

MC

Bj iC_B`2&(

ATC

CJ` fDW_ 2&(

5

Dk fEW_ 2&(

4

E@ fFW_ 2&(

3

Fʛ@ hGW 2&(

MR

Gϛ= lH_m`2&(

P*=$90

Ht@ HIN2&(

Will this monopoly firm be allocatively efficient? Answer: We should first locate

the allocatively efficient quantity level. A perfectly competitive industry

will operate where P = MC or Demand = Supply which is at q = ______tonnes?

Click here to continue.

IiH Jo2&(

Great East Monopoly Firm

J Ku?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

K @Pc4jLr!(%ծ:%.%d sukL+ҋ:EsO9T!%!mv5jE@D\ڒ&Hdb"k_`xM>F"ΕE [b.cwo\S,~З3T3Τy/?@#@ lv}:=-G.nIͤ4ggӳz10mT@#@ lv};<G.nv};<Gfc똸ggӳz10mFm 0.j9yͤ4ggӣѰ z10m摗ggӳz10mFm `\2Hhϧg5b0`̿/?ϧg5b0`ڌ@#@ `\ܓ0Hhϧg5b0`3ɜϧg5b0`ڌ@#@ `\ܓIHhϧg5b0`5 F QHhϧg5\aQ6s;>F֣ցj3i6Fvy<ZZ# \s{vy<ZZ# ͤ48yFvy<ZZ# \svy<ZZ# ͤ4/?Fvy<ZZ# \Ųtz6ZZ# ͤ4/?Fvy< F @}%69N#gցh.ܼfcg3h k>0mɗggӳz10mFm 0.Zyͤ4ggӳz10m嗗ggӳb0`ڌ@#@ `\HhϧgQ@`L sMg4 2&(

Price=Demand

M`@ pNg+ 2&(

MC =Supply

Nj fOW_ 2&(

5

Ok fPW_ 2&(

4

P@ fQW_ 2&(

3

Qʛ@ ~R12&(

Will this monopoly firm be allocatively efficient? Answer: We should first locate

the allocatively efficient quantity level. A perfectly competitive industry

will operate where P = MC which is at q = 500 tonnes. For the last tonne

produced, the extra consumer value = extra cost. Click here to continue.

RiH So2&(

Great East Monopoly Firm

S jT_D`2&(

P pc

T@ Ug)/2&(

q

perfect

competition

U۳@ Vu?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

V  Wo2&(

Since the price or demand curve

is for the monopoly, this is an

industry diagram. Recall that, for

perfect competition, the MC curve

is the same as the supply curve.

In a perfectly competitive market

quantity will be where Demand =

Supply or where Price = Marginal

Cost i.e. q = 500 with P =P pc.

Wh@? @<0:PckDXy\㻄<(%ծ:%.%d sukL+ҋ:EsO9T!%!mv5jE@D\ڒ&Hdb"k_`xM>F"ΕEjfX "\ Ke+.^e@a:yd-| ̳(g3h j=h66\̢Hhϧg5b0`*Fvy<ZZ# \̢Hhϧg5b0`,ecg3h j=h66\̢Hhϧg5b0`-9Fvy<ZZ# \̢Hhϧg5b0`/Fvy<ZZ# \ܓ Hhϧg5b0`1 F QHhϧg5\"Ѡ6s;>F֣ցj3i`/?Fvy<ZZ# \vy< F QHh ^~3i16yj=h6s6 g3h j=h662ļfcg3h j=h6s2m 6s;>F֣ցh3(fcg3h j=h6s23m 6s;>F֣ցh3(\fcg3h j=h6s2m 6s;>F֣ցh3Dthϧg5b0`ڌ@s2Fm 6s;>F֣ցh3(fcg3h j=h6s6 `g3h j=h667$fcg3h j=h6sug3h j=h667$Dfcg3h j=h6srMdGfcg3h h7@Thϧg5b0`ڌ@srMFm 6s;>F֣ցh7\s;>F֣ցj3i1srNFm 6s;>F֣ցh7$fcg3h j=h6s2Fm 6s;>F֣ցh3`Fs;>F֣ցj3i1s6 g3h j=h663(fcg3h j=h6s6Zg3h j=h66+fcg3h j=h6s@Fm 6s;>F֣ցh/fcg3yj=h6s@Fm 6s;>F֣ցh1Xs;>F֣ցj3i1rӊ@Fm 6s;>FֳQ.YQH v};<Gfc@#@ lv};F-G.]yͤ4ggӳ}J0`˓/?ϧg5b0`ڌ@#@ `\2Hhϧg5b0`//?ϧgQ@`F]69N#gցhX fYW_ 2&(

5

Yk fZW_ 2&(

4

Z@ f[W_ 2&(

3

[ʛ@ z\H2&(

Will this monopoly firm be allocatively efficient? Answer: The monopoly firm

will end up maximizing profit at q = 300 tonnes (MR = MC). At 300 tonnes, Price

exceeds MC. For the last tonne produced, the extra consumer value exceeds

the extra cost. Too little of the product is produced. Click here to continue.

\iH ]o2&(

Great East Monopoly Firm

] j^_D`2&(

P pc

^@ k__A?`2&(

q pc

_@ `u?2&(

Assume that Great East Corp purchases all 100 competitive firms in the pulp

industry described in the perfect competition tutorial. The diagram below describes

the new monopoly firm's demand, revenue, and per tonne costs.

`  zao2&(

The monopoly firm is NOT

allocatively efficient. At 300 tonnes,

it restricts output so as to drive

up the price compared to the

competitive, allocatively efficient

situation.

ah pbg+ 2&(

MC =Supply

bj scg4 2&(

Price=Demand

c`@ kd_``2&(

P mon

dB~@ le_\`2&(

q mon

 e*fUnwC %Wh2xA|J=ڍt!f"f@̠@ !" gw}P2(

LONG-RUN BEHAVIOUR

MONOPOLY

As an industry matures, the long-run behaviour in a monopoly situation is quite different than the long-run behaviour in a perfectly competitive situation.

Recall that in the long-run in perfect competition the firm earns just a normal profit. Also the firm is both productively efficient and allocatively efficient.

In contrast, Figure 4 illustrates that a monopoly firm often can enjoy positive or "excess" profits in the long-run. As well, there is no guarantee that the firm will be productively efficient. Moreover, for the last unit produced, the price exceeds marginal cost so the firm restricts ouput and is allocatively inefficient.

g# /hom0&(End of Figure 4 hm@ ?i i@<<PQaD< joO2&(

Click here to exit Figure 5

j kw `2(

Figure 5a: Review of Single Price Monopoly

k l  loy2&(

q = tonnes of pills per day

l m_TaB2&(

$ per

tonne

 m Wn'ိ2&(

The graph below revisits Caremore, the monopoly firm selling XCold. Recall that based on the industry demand in June, XCold was going to sell 3 tonnes of XCold per day at a price of $200 per tonne in order to maximize profits.

 n  Fow}2(

PRICE DISCRIMINATION

MONOPOLY

To this point, we have assumed a "single price monopoly" where the monopoly firm charges all consumers the same price for all the units of Product A it sells.

Under certain conditions, a monopoly firm may engage in the practice of "price discrimination" in order to enhance its revenue and its profit.

Price discrimination is a practice where the monopolist charges different prices for different units of Product A sold, not based on cost differences. The basis of price discrimination is differences in "willingness to pay".

Figure 5 illustrates how total profit can be enhanced with the practice called "perfect price discrimination."

 o#  fpW_ 2&(

1

 pk fqW_ 2&(

2

q+@ frW_ 2&(

3

rK@ fsW_ 2&(

4

s@ ftW_ 2&(

5

td uug&O `2(

MC = AVC

uH mvWt `2(

D

vł+  gwW 2&(

MR

w  xT逭2&(

The graph below describes a single price monopoly, as each of the 3 tonnes

of XCold sold for the same price of $200 per tonne. At this price, the total maximum profit was $102. Click here to continue.

x! myg" 2&(

MR = MC

yŃT gzW{ 2&(

q*

zu1 o{g# 2&(

P* = $200

{ i|_B`2&(

ATC

|` i}_B`2&(

ATC

}8 q~g- 2&(

ATC* = $166

~#` w)(2&(

Area of the green rectangle below is:

height x width = (P*-ATC*) x q* =

profit per tonne x number of tonnes =

$34 x 3 = $102 = total profit

@     @|PM e oO2&(

Click here to exit Figure 5

f0PůFigure 5b: The Demand Curve and Willingness to Pay

  l  8L?ိ2&(

In order to understand price discrimination, it is useful to note that a demand curve provides information about how much consumers or buyers are willing to pay for different units of Product A.

   Ew}2(

PRICE DISCRIMINATION

MONOPOLY

To this point, we have assumed a "single price monopoly" where the monopoly firm charges all consumers the same price for all the units of Product A it sells.

Under certain conditions, a monopoly firm may engage in the practice of "price discrimination" in order to enhance its revenue and its profit.

Price discrimination is a practice where the monopolist charges different prices for different units of Product A sold, not based on cost differences. The basis of price discrimination is differences in "willingness to pay".

Figure 5 illustrates how total profit can be enhanced with the practice called "perfect price discrimination"

# `=J=!=# Ơ=%|= w 4(2&(

The Demand Curve for Caremore's XCold.

This curve shows that there are different

willingness to pay values attached to

different units (tonnes) of XCold.

'֠ j_Q`2&(

$300

(  fWf{ 2&(

1

)@ j_Q`2&(

$250

*Q@ fWf{ 2&(

2

+@ fWf{ 2&(

3

,@ j_Q`2&(

$200

-` fWf{ 2&(

4

.۪@ j_Q`2&(

$150

/ fWf{ 2&(

5

0L j_Q`2&(

$100

1C  T2&(

The demand curve for XCold is displayed below. It indicates that someone is willing to pay up to $300 for the 1st tonne of XCold. Similarly, someone is willing to pay a maximum of $250 for the 2nd tonne of XCold; $200 maximum for the 3rd tonne and so on. Click here to continue.

2! oy2&(

q = tonnes of pills per day

3ޠ@  #%'()*+,-./0123@d w `2(

Figure 5c: Monopolist Practicing Perfect Price Discrimination

  l  ?'ိ2&(

Perfect price discrimination refers to a situation where the monopoly firm enhances total revenue and profit by charging the maximum amount that each buyer is willing to pay for each unit of Product A.

   Ew}2(

PRICE DISCRIMINATION

MONOPOLY

To this point, we have assumed a "single price monopoly" where the monopoly firm charges all consumers the same price for all the units of Product A it sells.

Under certain conditions, a monopoly firm may engage in the practice of "price discrimination" in order to enhance its revenue and its profit.

Price discrimination is a practice where the monopolist charges different prices for different units of Product A sold, not based on cost differences. The basis of price discrimination is differences in "willingness to pay".

Figure 5 illustrates how total profit can be enhanced with the practice called "perfect price discrimination"

#ayŢcm %79DvR sZي̱/C~:QR;+Lx:g4`@\AΜ+G"r7p(4 T2&(

The demand schedule for Caremore's XCold is shown below. If Caremore goes from selling 1 tonne to 2 tonnes a day we assume that the 1st tonne will be sold at the maximum value of $300, while the 2nd tonne will be sold at the maximum value of $250. Click on point b in the table to display the marginal revenue.

)@ fW 2&(

q

AѠ fW{ 2&(

P

͠ sg7 2&(

Total Revenue

A͠ fWf{ 2&(

1

B  j_Q`2&(

$300

b  tg9 2&(

300 x 1 = $300

B  fWf{ 2&(

2

BG@ j_Q`2&(

$250

bG@ voW2&(

300 +250 = $550

BG@MW > yo2&(

Marginal Revenue

sh fWf{ 2&(

3

B@ j_Q`2&(

$200

b@ {o2&(

300 +250 + 200= $750

B@!`@P@eT?yŢcm ((%7dj$`ԙ3`d iɕ/i4]v`/Z&?pR sZfX(xTLJ &yT.^#nT:dz~ <)k8': 3[Le@?PԃK2tZ9 0 ?s@ fW 2&(

q

AѠ fW{ 2&(

P

͠ sg7 2&(

Total Revenue

A͠ fWf{ 2&(

1

B  j_Q`2&(

$300

b  tg9 2&(

300 x 1 = $300

  fWf{ 2&(

2

BG@ j_Q`2&(

$250

bG@ voW2&(

300 +250 = $550

2G@W ? yo2&(

Marginal Revenue

sh j_Q`2&(

$250

 T2&(

If Caremore now sells 2 tonnes a day, Caremore receives $300 for the 1st tonne and $250 for the 2nd tonne. Total revenue equals $550. Marginal revenue for the 2nd tonne equals $550 - $300 = $250 which is the same as the price of the 2nd unit. Click here to continue.

)@ fWf{ 2&(

3

B@ j_Q`2&(

$200

b@ {o2&(

300 +250 + 200= $750

 B@$z4NdJn(%dw) +c!#D o2&(

Under perfect price

discrimination,

marginal revenue

equals price.

$@ !#$ T2&(

The demand schedule for Caremore's XCold is shown below. If Caremore goes from selling 2 tonnes to 3 tonnes a day we assume that the 1st tonne will still be sold at $300, the 2nd tonne at $250 and the 3rd tonne at $200. Click on point c in the table to display the marginal revenue for the 3rd tonne.

)@ fW 2&(

q

AѠ fW{ 2&(

P

͠ sg7 2&(

Total Revenue

A͠ fWf{ 2&(

1

B  j_Q`2&(

$300

b  tg9 2&(

300 x 1 = $300

B  fWf{ 2&(

2

BG@ j_Q`2&(

$250

bG@ voW2&(

300 +250 = $550

BG@MW @ yo2&(

Marginal Revenue

sh j_Q`2&(

$250

 fWf{ 2&(

3

B@ j_Q`2&(

$200

b@ {o2&(

300 +250 + 200= $750

 B@!n`@@ !PV@eAyŢcm (%79%FsJ:Nu)RdΩ 6EO&VրvhDz,KRVezҏ \^N#6`C.S!D:X/:dz~ wWLyN[csLL:5\CŠ2(݌a~.^ǒp8`/~ 0 fW 2&(

q

AѠ fW{ 2&(

P

͠ sg7 2&(

Total Revenue

A͠ fWf{ 2&(

1

B  j_Q`2&(

$300

b  tg9 2&(

300 x 1 = $300

B  fWf{ 2&(

2

BG@ j_Q`2&(

$250

bG@ voW2&(

300 +250 = $550

BG@W A yo2&(

Marginal Revenue

sh j_Q`2&(

$250

 fWf{ 2&(

3

B@ j_Q`2&(

$200

b@ {o2&(

300 +250 + 200= $750

B@ j_Q`2&(

$200

 Ќ!`A T2&(

If Caremore now sells 3 tonnes a day, Caremore receives $300 for the 1st tonne, $250 for the 2nd tonneand $200 for the 3rd. Total revenue equals $750. Marginal revenue for the 3rd tonne equals $750 - $550 = $200 which is the same as the price of the 3rd unit. Click here to continue.

#)@$ o2&(

Under perfect price

discrimination,

marginal revenue

equals price.

%И@ #$%PHe `BJ!# ƠB%|B bw2&(

The demand curve and the the marginal

revenue curve are one and the same

under perfect price discrimination.

' j_Q`2&(

$300

(  fWf{ 2&(

1

)@ j_Q`2&(

$250

*Q@ fWf{ 2&(

2

+@ fWf{ 2&(

3

,@ j_Q`2&(

$200

-` fWf{ 2&(

4

.۪@ j_Q`2&(

$150

/ fWf{ 2&(

5

0L j_Q`2&(

$100

1C  T2&(

The demand curve for XCold is displayed below. We have just shown that under perfect price discrimination, for each unit sold, price equals marginal revenue. This implies that the XCold's demand curve is the same as XCold's marginal revenue curve. Click here to continue.

2! oy2&(

q = tonnes of pills per day

3ޠ l_p`2&(

D = MR

4<Ҹ@  !#%'()*+,-./01234P_xaD w `2(

Figure 5c: Monopolist Practicing Perfect Price Discrimination

  l  (?ိ2&(

As the cost accountant for Caremore you have been asked to revisit the 4 SR

questions for the firm for the month of June, only this time you are to assume

perfect price discrimination.

   Ew}2(

PRICE DISCRIMINATION

MONOPOLY

To this point, we have assumed a "single price monopoly" where the monopoly firm charges all consumers the same price for all the units of Product A it sells.

Under certain conditions, a monopoly firm may engage in the practice of "price discrimination" in order to enhance its revenue and its profit.

Price discrimination is a practice where the monopolist charges different prices for different units of Product A sold, not based on cost differences. The basis of price discrimination is differences in "willingness to pay".

Figure 5 illustrates how total profit can be enhanced with the practice called "perfect price discrimination"

#TypSU((%M*XBFƕ>lh^TzGx#%ː4r!^|ccol; %g3h j=h662ԙfcg3h j=h6s-IFm 6s;>F֣ցh2Ԡ4fcg3h j=h6s05g3h j=h663 Vy<ZZ# ͤ4ggӁs-JFm 6s;>F֣ցh2Ԭfcg3h j=h6s-JFm 6s;>F֣ցh3 s;>F֣ցj3i1s0og5b0`ڌ@#@ lv}82hϧg5b0`ڌ@s-KFm 6s;>F֣ցh2Կtfcg3h j=h6s0)g3h j=h663 Ɩy<ZZ# ͤ4ggӁs/ Fvy<ZZ# ͤ2fcg3h j=h6s-LFm 6s;>F֣ցh3 6s;>F֣ցj3i1s0cg5b0`ڌ@#@ lv}82Dhϧg5b0`ڌ@s-MFm 6s;>F֣ցh2޴fcg3h j=h6s0g3h j=h662fcg3h j=h6s0Ώg5b0`ڌ@#@ lv}824fcg3h j=h6s-NFm 6s;>F֣ցh2tfcg3h j=h6soD1Hhϧg5b0`%Fvy<ZZ# ͤ.\s;>F֣ցj3i1s jgq4x F QH._-H9N#gցj3i̊%cg3yk>0mFm 䶳4x F QHh oy2&(

q = tonnes of pills per day

 _TaB2&(

$ per

tonne

 fW_ 2&(

1

+@ rg1? 2&(

Price = $300

J` pg+ 2&(

AVC = $100

7  dwH2&(

We assume economies of scale where

ATC continually declines. This implies that

MC is constant and equal to AVC.

H ug&O `2(

MC = AVC

H w2&(

In monopoly, the industry demand curve for

June equals the firm's demand (price) curve

ρ` mWt `2(

D

ł+  =倭2&(

Question 1: Should Caremore operate or shutdown in June? Answer: Operate

since at some quantities (i.e. q =1) price exceeds average variable cost. This is

the same result as the single price monopoly. Click here to continue.

!@PPPaypS((%M*8BFƕ.lhNf= 8/U>z3vT{,Ex#|  սm 6s;>F֣ցhWZ5-g3h j=h66Y5ϧgQ@`Fɵv};F-GfcK'm6yj=h66=<5Fvy< F @v};q = tonnes of pills per day

 _TaB2&(

$ per

tonne

 fW_ 2&(

1

k fW_ 2&(

2

+@ fW_ 2&(

3

K@ fW_ 2&(

4

@ fW_ 2&(

5

d ug&O `2(

MC = AVC

H vg" `2(

D = Price

ł+  T逭2&(

Question 2: What quantity level should Caremore produce in June? Answer:

Now, the most profitable quantity is where price equals marginal cost which is

at q = 5 tonnes per day. Click here to continue.

!@ n_n`2&(

P = MC

 o2&(

To find the best q, first find where

MR = MC. Under perfect price

discrimination this is where P =MC

as P and MR are the same.

Z@PAeEyoS((%Hx{ys:K΄Ve) z)H{K=] K =S92^X %P)@BYRU%X@>Z!| ̈́(y14x F QH.mQD v};<Gfc֔ϧg5b0`ڌ@#@ lp.lPͤ4ggӳz10m<14x F QH.iC9N#gցj3i(ycg3lz10mFm e4x F QHh Yc>F֣ցj3i1#@ lv};<Gf dYc>gցj3i13h j=h669 Y*3ig3h j=h6sjg5b0`ڌ@#@ lv}86thyj=hJc ͤ6pfcg3h j=h6su "Ftz6ZZ# ͤ6DhϧG`b0`ڌ@sfˉFm 6s;>gցh8IJTfcg3h j=h6sK3g5b0`ڌ@#@ lv}8:TTfggӳz10m8f#gցj3i1\6yj=h669 [3i14x F @#4x F QHh b:3i1l< F @#4x F QHh b:3i14x F @3h j=h669 _3i14x F @ #@ lv};<Gf *b:3ig3h j=h6s Ngӳb0`ڌ@#@ lp.rvy<ZZ# ͤ4gl[Fm 6s;>F-g9h j=h669 c3i14x F @Y3h j=h669 f3i14x F @ӆ3vy<ZZ# ͤ9ԄhϧgQ@`#GkQ@`Fp.w]9N#GkQ@`lg0\>F֣ց]xF QHh4uF֣ցj3i1\s_QHhϧg5b0`V-ϧg5`F㶤#@ lv};<Gf gjB4ggӳb0`ڌ@smHFvy< F QH.mIy(l< F QHhϧ͗ڌ@#@ lv}:=-G.matz6ZZ# ͤ4g明@#@ lv}:=-G.matz6ZZ# ͤ4g澘@#@ lv};<G.lُ(ͤ4ggӣѰ z10mϧg5b0`ڌ@#@ lp.g9ͤ4ggӳb0`̵1Fvy<ZZ# \ԳћHhϧg5b0`'1ϧgQ@`FƤ#@ lv};F-GfcdϧG`b0`ڌ@#@ lp.lٛͤ4ggӣѰ z10m1l< F QH.ma tz6ZZ# ͤ4gԚ:F3Q@`Fp.l!9N#GkQ@`͚@#@ lv}:=-G.p19N#GkQ@`lϧG`b0`ڌ@#@ lp.m9NF3Q@`4ϧG`b0`ڌ@#@ lp.lȨͤ4ggӣѰ z10m͜@#@ lv}:=-G.ma tz6ZZ# ͤ4g1l< F QH.matz6ZZ# ͤ4gx1l< F QH.v4x F QHhϧcŒ@#@ lv};<G.v,4x F QHhϧc@#@ lv};<G.v9Ȩͤ4ggӳz10ml`ϧg5b0`ڌ@#@ lp.v9hͤ4ggӳz10mc@#@ lv};<G/@6b#:hϧg۹F֣ց 6smHFtz6ZZ# ͤ/5cg3h j=h66^Զs;>F֣ցj3i1z 3R6s;>F֣ցj3isMKg3yj=h66[5!ggӳz10mFm 9NF3Q@`L69N#GkQ@` @ggӳz10mFm 0/En>F֣ցj3i1Hj3i14x P3h j=h669 2@#@ lv};<G/@^mb4ggӳz10mFm ,v};<Gfc' 69N#GkQ@` #GkQ@`Fp/@^s4ggӳz10mFm y9N#GkQ@`m4x F QHh @#@ lv};<G/@By3i14x F @9 vy<ZZ# ͤ4gP]3h j=h669 /،669N#GkQ@/Ex>F֣ցj3i1j3i14x ؒv@#@ lv}:=-gԣ \Nvy<ZZ# ͤ4$Fvy< F @|d69N#GkQ@` (Jc>gQz10mFm 6s:4g*vggӳb0`ڌ@#@ `\aQyk>0mFm 6s;> M24ggӣѰ }J0`ڌ@s Fm 6s;>gQ.bD,v};<GfcE<-gԣ ͤ4ggӳ83g3YƬtz6Zϩgуf P4ggӳb0`ڌ@s gq4x F QH.dQKH9NF3Y(j3i̊*1cg3yk>0mFm r#@ lv};<Gf Q 9N#GkQ@`Fwe69N#GkQ@` Y*3i14x F @e`69NF3Y(h2D6s;>gQfcJggӳz10mFm `\QHhϧgQ@` (Yc>gQfcg3s MFm 6s;>gQ.bdͤ4ggӳz10mA@#@ lv}:=-gԣ \2QHhϧG`` (_S>gQfcg3s"Ftz6ZϩF QH.`ͤ4ggӳb0`1ϧg5b0`ڌ@#@ `\ț hϧG`x F QHu:;#@#@ lv};F֣ցh.ԄhϧG``14x F QH.dhͤ4ggӣѰ }J0`̃3uFtz6ZϩF @#@ lv};F֣ցj3i1s% gӣѰ }J0`ڌ@#@ lp.dj3i1hgyk>Gf jB4ggӳb0`ڌ@s"Ftz6ZϩF QH.d(ͤ4ggӣѰ }J0`̃7Ftz6ZϩF @g69NF3Y(h2 fcg3yk>0mHF3Y(j3i1\ȣ6s;>gQf w*3i1lgQ.d,v}:=-gԣ ͤ4 oy2&(

q = tonnes of pills per day

 _TaB2&(

$ per

tonne

 fW_ 2&(

1

k fW_ 2&(

2

+@ fW_ 2&(

3

K@ fW_ 2&(

4

@ fW_ 2&(

5

d vg" `2(

D = Price

ł+  T2&(

Question 3: What price should Caremore charge? Answer: Here you have to remember that each of the 5 units sells at a different price. The 1st tonne sells at

$300, the 2nd at $250, the 3rd at $200, the 4th at $150 and the 5th tonne at $100. Click here to continue.

!@ n _n`2&(

P = MC

  j _Q`2&(

$300

 b=  j _Q`2&(

$250

 by@ j _Q`2&(

$200

 b j _Q`2&(

$150

 c j_Q`2&(

$100

cC ug&O `2(

MC = AVC

(@?PxпyoS(((%1twշ[6N*z7'{jtƽ8kR7l{T9!oUp> 5 ƞYe7( R4jSf%8DڊK=\•%ˆ;^)/DJԨ!,*ʏJŒXTY-EOfe) z7p@ ͎(yFvy<ZZ# ͤ6s;>F֣ցj3i1skJYgӳz10mFm 6s86pDfcg3h j=h6sJFvy<ZZ# ͤ5s;>gQfcc<16yj=h66\ςlv};<Gf Yc>F֣ցj3i1#@ lv};<Gf dYc>gցj3i13h j=h669 Y*3ig3h j=h6sjg5b0`ڌ@#@ lv}86thyj=hJc ͤ6pfcg3h j=h6su "Ftz6ZZ# ͤ6DhϧG`b0`ڌ@sfˉFm 6s;>gցh8IJTfcg3h j=h6sK3g5b0`ڌ@#@ lv}8:TTfggӳz10m8f#gցj3i1\6yj=h669 [3i14x F @#4x F QHh b:3i1l< F @V#69N#GkQ@` b:3i14x F @3h j=h669 _3i14x F @ #@ lv};<Gf *b:3ig3h j=h6s Ngӳb0`ڌ@#@ lp.rvy<ZZ# ͤ4gmX@#@ lv};gցj3i1fs69N#GkQ@` g:3i1l< F @&s4x F QHwW:pԅggӳz10mFm F#@ lv};F֣ցj3i1"#@ lv};<Gf dbs>gցj3i1'3h j=h669+:g9ggӳb0`ڌ@#@ `\#;6yj=h669 rg;9N#GkQ@`Fw3h k>0mFm 6s8W3ԅcg3lz10mFm f4x F QHh jB4ggӳz10mFm 楳6yj=h66W8$sFvy<ZZ# \S9vy<ZZ# ͤ4ͬ2gӣѰ z10mFm 6s86yj=h669#cg3h j=h 669s;>gցj3i1su HQ6s;>gցj3iͬ5!5gӣѰ z1vF QHhͩ4ugցj3i1\CR6s;>F֣ցj3i͢5cg3yj=h66\cR6s;>F֣ցj3iͩ6gցj3i1\ٳxQHhϧG`b0`ͩ8gցj3i1\ٳћHhϧG`b0`͛9Ftz6ZZ# \ìl< F QHh͛;mFtz6ZZ# \ٳQHhϧG`b0`6N#GkQ@`F\u6s;>F֣ցj3i8AN#GkQ@`F\탐4x F QHh9Fvy<ZZ# \탩4x F QHh;9cg3h j=h66\™4x F QHh<cg3h j=h66^Dhϧg۹ ГΌ@#@ lv};<GЯ@BeZ@#@ lv};<GЮ3i14x F B>F֣ցj3i1vy<ZZ# ͤ4g&694`.};<G8\` jB4ggӣѰ z10mFm  ͤ4ggӳz10m#@ lv};<Gf Pggӳz10mFm 0D gqϧg5`F^,fcg3h j=h6z9ћHhϧg5b0`oHQ6s;>gցj3iZMKg3h j=h66 0Eiggӳz10mFm 0DFjB1l< F QHDk1@#@ lv};<G/El9N#GkQ@`F)ͤ4ggӳz10mL#69N#GkQ@` @\ggӳz10mFm 0/Ds3i14x F By4ggӳz10mFm ,v};<Gfc' 69N#GkQ@` #GkQ@`Fp/@^s4ggӳz10mFm y9N#GkQ@`m4x F QHh @#@ lv};<G/@By3i14x F B9'>F֣ցj3i1)؈ͤ4ggӳz10mP'{34x F QHh C^ϧg5b0`ڌ@#@ lpDzJ@#@ lv};<G.]'hͤ4ggӣѰ }J0`ˍ$ϧg5b0`ڌ@#@ `\RNћHhϧgQ@` I3i14x F @3yk>Gfcg3@ lp.b'lv};0m/Bggӳz10mFm 0.dQC}J0`ڌ@#@ lv};<͝#ήƀvy=-gԣ ͤ/СhϧgQ@`F֣ցj3i1r%Fm 6s;>F֣ցh.$Tfcg3h j=h6s% gӣѰ }J0`ڌ@#@ lp.d^lF-G.diͤ4ggӣѰ }J0`Q,Fvy<ZZ# \2ћHhϧG`` ]3i1lF֣ցj3i1r HFvy<ZZ# ͤ2 Tfcg3yk>0m *s6yj=h66W2]]1l=#Ï֣ցj3iΡeÏF3PrHhϧg5b0`3Fvy< F Bv};<Gf5!cg3lz10mFm &Ѱ }J0`ڌ@#@ lv}82(Ԅhgyk>vF QH.b9N#GkQ@`E1lgQ.dͤ4ggӣѰ }J0`̑:=gQfcg3GX#@ lv}:=-gԣ ͤ2 Tfcg3yk>0mA.@#@ lv}:=-gԣ \Ytz6ZϩF QHh oy2&(

q = tonnes of pills per day

 _TaB2&(

$ per

tonne

` fW_ 2&(

1

k fW_ 2&(

2

+@ fW_ 2&(

3

K@ fW_ 2&(

4

@ fW_ 2&(

5

d vg" `2(

D = Price

ł+  T%2&(

Question 4: What is the maximum profit under perfect price discrimination? Answer: At the best quantity of 5 tonnes, calculate total revenue (TR) minus total cost (TC). Total revenue = $300 +$250 + $200 +$150 + $100 = $1000. Total cost = ATC x q* = $140 x 5 = $700. Total profit = $1000 - $700 = $300.

Click here to continue.

!@ k_B`2&(

ATC

 j_K`2&(

$300

? j_K`2&(

$250

v j_K`2&(

$200

 j_K`2&(

$150

 ug&O `2(

MC = AVC

( r g* 2&(

ATC = $140

 % j!_K`2&(

$100

 !F "w(2&(

Recall that the maximum profit was

$102 in the single price monopoly case.

Under perfect price discrimination, the

total profit has increased to $300!

!"}@   ! E#w}2(

PRICE DISCRIMINATION

MONOPOLY

To this point, we have assumed a "single price monopoly" where the monopoly firm charges all consumers the same price for all the units of Product A it sells.

Under certain conditions, a monopoly firm may engage in the practice of "price discrimination" in order to enhance its revenue and its profit.

Price discrimination is a practice where the monopolist charges different prices for different units of Product A sold, not based on cost differences. The basis of price discrimination is differences in "willingness to pay".

Figure 5 illustrates how total profit can be enhanced with the practice called "perfect price discrimination"

 ## /$om0&(End of Figure 5  $m@  ? @Click here to exit Figure 6

 %?^&ypfM ,Cgܸc҇VT|W,bj,X@*T@ e@ & 'w  `2(

Figure 6a: Review of Unregulated Single Price Monopoly

 ' l  (oy2&(

q = tonnes of pills per day

 ( )_TaB2&(

$ per

tonne

 ) W*'ိ2&(

The graph below revisits Caremore, the monopoly firm selling XCold. Recall that based on the industry demand in June, XCold was going to sell 3 tonnes of XCold per day at a price of $200 per tonne in order to maximize profits.

*  +w}2(

REGULATED MONOPOLY

In a typical natural monopoly, the monopoly firm's price, quantity, and profit may be regulated by the government as illustrated in Figure 6.

In theory, the government can promote allocative efficiency by forcing the firm to set a price equal to its marginal cost. This type of regulation is called marginal cost pricing.

The problem with marginal cost pricing is that, under natural monopoly, this will cause the firm to incur losses and go out of business. Thus, the regulator often sets the firm's price equal to average total cost. This type of regulation is called average cost pricing. Average Cost Pricing will cause the firm to sell more output at a lower price and at a lower profit level, and still stay in business.

+#,yoU#x(((%a,(Aި0HKl"oxYsq\)I,>^H]eIs)d\T{Ka}i3^ќF:L-k`2\ CIژ! TiXBeKxavgm(:\6 O7mBnڴB\Js*.DN@SfBvx%ڴ%.,tH.cJi ,gӳ}J0`ڌ@#@ lp.eevy<ZZ# ͤ4gXϧgQ@`F\ Lfcg3h j=h6sGK%Yvy< F QHh Y*3i14x F @4x F QHh qY*3i1l< F @3h j=h66 6s8:rTfcg3h j=h6s,gӣѰ z10mFm 6s8W;CN#GkQ@`F\ᑃfcg3h j=h.N#GkQ@`F\ћHhg ͤ4ggӳ}7<Gl` `_S>gցj3i1c ͤ4ggӳz0 _3i1l< F @%4x F QHw;};<Gfcg3sn QHhϧg5`;};<Gfcg3s3h j=h66;8V}7FֳQfcg3sgӳz10mFm 6s8;Dfcg3h j=h6sg3h j=h66;};<Gfcg3sNcFm 6s;>F֣ցh;};<Gfcg3sNFm 6s;>F֣ցh;|s;>F֣ցj3i1s+g3h j=h66W.IJUFtz6ZϩF @q4x F QHh *Y*3i16yj=h6r%Fm 6s;>F֣ցh1Tfcg3h j=h6sK%g3lz10mFm 0b|g9N#gցj3i1sKFm 6s;>F֣ցh/4fcg3h j=h6sKFm 6s;>F-G.\i|lv};<Gfcؗƌ@#@ lv}:=-gԣ , -T2&(

The problem with unregulated monopoly is that, at q = 3 tonnes, the price ($200) exceeds marginal cost ($100) leading to allocative inefficiency. Also, the firm makes an "excess profit" of $102. In short, the monopolist restricts quantity to drive up price and profit. Click here to continue.

-! .oy2&(

q = tonnes of pills per day

. /_TaB2&(

$ per

tonne

/ f0W_ 2&(

1

0k@ f1W_ 2&(

2

1س@ f2W_ 2&(

3

2@ f3W_ 2&(

4

3@ f4W_ 2&(

5

4 u5g&O `2(

MC = AVC

5H g6W 2&(

MR

6 l7g g 2&(

MR= MC

7[[ g8W{ 2&(

q*

8u1 o9g# 2&(

P* = $200

9ⶀ i:_B`2&(

ATC

:Lø q;g- 2&(

ATC* = $166

;" *<w)22&(

Area of the green rectangle below is:

height x width = (P*-ATC*) x q* =

profit per tonne x number of tonnes =

$34 x 3 = $102 = profit in excess of a

normal profit.

 < o=g' 2&(

MC = $100

!=c7  i>_B`2&(

ATC

">"` p?_C`2(

D=P

#?ł+ @      !"#Pc`I @oO2&(

Click here to exit Figure 6

@f 0PůFigure 6b: Marginal Cost Pricing Regulation

B l  Coy2&(

q = tonnes of pills per day

C D_TaB2&(

$ per

tonne

D LE'ိ2&(

From a resource allocation viewpoint, it would be socially optimal if the government forced the monopoly firm to lower price and increase quantity so that the most allocatively efficient output level would be sold.

E  Fw}2(

REGULATED MONOPOLY

In typically a natural monopoly , the monopoly firm's price, quantity, and profit may be regulated by the government as illustrated in Figure 6.

In theory, the government can promote allocative efficiency by forcing the firm to set a price equal to its marginal cost. This type of regulation is called marginal cost pricing.

The problem with marginal cost pricing is that, under natural monopoly, this will cause the firm to incur losses and go out of business. Thus, the regulator often sets the firm's price equal to average total cost. This type of regulation is called average cost pricing. Average Cost Pricing will cause the firm to sell more output at a lower price and a lower profit level and still stay in business.

F#Gypd(((%v)@x&qC\܂NJ8OoK Si ).#̋oss,"jpR4$r̈C:rEx TKsY;S1as`ʀ?– 5MBƚ([4 ;?hAע=rXTY-EKJԨ!,*ʏJńɽg%-|W,EA\J[$A/E6iR'`.vեNj| g@#@ lv};<G.zF֣ցh8Ŧs;>gQfc_X@#@ lv}:=-G.gLv}:=-GfcX@#@ lv};<G.jHͤ4ggӳz10m),69N#GkQ@` ggӳb0`ڌ@#@ `^0&}:==呏֣ցj3i11v}:=-GfcX@#@ lv}:=-G/@zb9N#GkQ@`F18ͤ4ggӣѰ z10mF,69N#GkQ@` ~@#@ lv}:=-G/DTg3i1l< F @1lv}:=-GfcHƪl< F QHh #ggӣѰ z10mFm 0/DTm3i1l< F @Qhͤ4ggӣѰ z10mHl< F QHh @#@ lv}:=-G/Dpt< F QHhϧG`Qhͤ4ggӣѰ z10mEGr69NF3Q@` .@#@ lv}:=-G._Hͤ4ggӳz10mXggӳz10mFm 0.bՋHͤ4ggӳz10mMXggӳz10mFm `\+ћHhϧgQ@` b3i1l< F @G fHW_ 2&(

1

Hk@ fIW_ 2&(

2

Iس@ fJW_ 2&(

3

J@ fKW_ 2&(

4

K@ fLW_ 2&(

5

L uMg&O `2(

MC = AVC

MH gNW 2&(

MR

N hOT倭2&(

Under marginal cost pricing, the government forces the monopoly firm to set its price and output where Price = Marginal Cost. This way the consumer value of the last unit of output sold just equals its extra cost. Click here to continue.

O! kP_f?`2&(

P= MC

Ph iQ_B`2&(

ATC

Q"` pRg* 2&(

ATC = $140

R Sw <2&(

If the government forces the monopolist to

expand output to where P=MC, this will be

at q = 5 tonnes, with a price of $100. The

problem is that, at q=5, the price of $100 is

below the average total cost of $140. The firm

will incur losses and eventually go bankrupt!

 S sTg5 2&(

P = MC = $100

!T7  iU_B`2&(

ATC

"ULø pV_C`2(

D=P

#Vł+ @ !"#? @q = tonnes of pills per day

W X_TaB2&(

$ per

tonne

X Yw  `2(

Figure 6c: Average Cost Pricing Regulation

Y l  Z'ိ2&(

Since marginal cost pricing regulation can drive the monopoly firm out of

business, the government has typically regulated the firm so that the price and output is set at a level where the firm just makes a normal profit.

Z  [w}2(

REGULATED MONOPOLY

In typically a natural monopoly , the monopoly firm's price, quantity, and profit may be regulated by the government as illustrated in Figure 6.

In theory, the government can promote allocative efficiency by forcing the firm to set a price equal to its marginal cost. This type of regulation is called marginal cost pricing.

The problem with marginal cost pricing is that, under natural monopoly, this will cause the firm to incur losses and go out of business. Thus, the regulator often sets the firm's price equal to average total cost. This type of regulation is called average cost pricing. Average Cost Pricing will cause the firm to sell more output at a lower price and a lower profit level and still stay in business.

[#\ypd(((%v)@x&QЅDB\b@RoKK23L0-=UVf8 ">WnȆٌpPhN9"ZT{K {r^tҤvBs/@b_Ay˪DV\J[$A/CiRt_ ׌Q(KQd R*(K*Jd|KiRt4Ϻ0C1+6yj=h70`ڌ@sՌ)ǀkQ@`FvyF֣ցh:8œx F QHhϧgsLFm 6s;>F֣ցh;fcg3yj=h6sLm lv};<G.ni,v};FֳQ.iI(ͤ4ggӳz10m@#@ lv};F-Gfcg3sMFvy< F QH.᧌v};F-G.ٌv};gQfc2@#@ lv};<G.e ,v};1

]k@ f^W_ 2&(

2

^س@ f_W_ 2&(

3

_@ f`W_ 2&(

4

`@ faW_ 2&(

5

a ubg&O `2(

MC = AVC

bH pc_C`2(

D=P

cł+  gdW 2&(

MR

d feT倭2&(

Under average cost pricing, the government forces the monopoly firm to set its price and output where Price = Average Total Cost. This way the quantity is set as large as possible, without bankrupting the firm. Click here to continue.

e! lf_q`2&(

P= ATC

f|p ig_B`2&(

ATC

g"` thg8 2&(

P = ATC = $150

 h` Diw F2&(

Here the government forces the monopolist

to expand output to where P = ATC, this will

be at q = 4 tonnes, with a price of $150.

Since the average total cost curve includes an

amount to allow the firm a normal profit, the

government is setting the price as low as

possible, without causing bankruptcy.

!i ij_B`2&(

ATC

"jLø@ !" kw}2(

REGULATED MONOPOLY

In typically a natural monopoly , the monopoly firm's price, quantity, and profit may be regulated by the government as illustrated in Figure 6.

In theory, the government can promote allocative efficiency by forcing the firm to set a price equal to its marginal cost. This type of regulation is called marginal cost pricing.

The problem with marginal cost pricing is that, under natural monopoly, this will cause the firm to incur losses and go out of business. Thus, the regulator often sets the firm's price equal to average total cost. This type of regulation is called average cost pricing. Average Cost Pricing will cause the firm to sell more output at a lower price and a lower profit level and still stay in business.

k# /lom0&(End of Figure 6 lm@ @dL moO2&(

Click here to exit Figure 7

m nȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

n yovw+h2&(

MARKET STRUCTURE

oB@ poO2&(

Click here to exit Figure 7

p@@@@@ qȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

q rw  02(

Perfect Competition: Market Structure

r {so2&(

Numerous Competitors

sk|Ӗ|@{@EDAC@?M?L @_U_T@]\C@ihqC@ml=@yx C@}|׫@‡5@ȏ5@/ʗ5 @?П5@Oҧ5h@_د5N@oܷ54@޿5@ŏ5#@ş1Д@ů1Ф@ſ1f@11@0@0@ {to2&(

Numerous Competitors

tKz@@@@@@ uȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

u vw  02(

Perfect Competition: Market Structure

v {wo2&(

Numerous Competitors

wKz xxo2&(

Identical Product

x;;处@YEYDn@vv9@IHD@ͱE@ML@b@*9 H@5E+@"V5e4@1n5Ņ=@@.5F@Nx5O@]5tW@lr95Z`@{45?%j@ʼn5$er@Ř[5 {@ŧxӼ1V@Ŷ:10@}1qT@Ӽ1;|@~?1@>0Ж@ xyo2&(

Identical Product

yMr@@@@@@@ zȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

z {w  02(

Perfect Competition: Market Structure

{ |Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

| }w  02(

Perfect Competition: Market Structure

} {~o2&(

Numerous Competitors

~Kz xo2&(

Identical Product

 Mr pg* 2&(

Easy Entry

 ٮŸ@ Ǒǐ|@ EDFE@ @ ڄm96a}@ 69(р@ !9A@ -9 @@ :H$9@ FR5@@ S5O@ _Z5^@ k5m@ x 5xF|@ ńl65]F@ Őd5B&@ ŝ$Β5&@ ũ5 @ ŵ1@ 61\@ ΒI1t@ w1>[@ J1 @ 0ќL@  pg* 2&(

Easy Entry

 MD@@@@@@@   Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Market Structure

 {o2&(

Numerous Competitors

Kz xo2&(

Identical Product

Mr pg* 2&(

Easy Entry

MD qg+ 2&(

Price Taker

 ͱ@ ednG @ 8@ *@  93Q@ `09%@@ "V9@@ .|9 ۀ@ ;D5G@ G5g@ Sܩ5g@ `&5DZ@ lt:5@ x`5u@ Ņ …5Z'@ őVȫ5?G@ ŝ5$h@ ũ5 @ Ŷ:4&@ †C47@ h4(H@ 4(Y@ h4hj@ 4hhz@  qg+ 2&(

Price Taker

 &E@@ "pnåp%%M. N Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Market Structure

 w  2&(

Market demand and market supply sets the price

3D ~oa2&(

Pulp Industry or Market

"4@ {o2&(

Numerous Competitors

 Kz xo2&(

Identical Product

 Mr pg* 2&(

Easy Entry

 MD qg+ 2&(

Price Taker

 &E k_M_`2&(

Price

  D qg)/ 2&(

Q in tonnes

7p&(%&'i |o2&(

D for all pulp buyers

?#4@@@@@@,p&(%&'bG2pp#m vg5 2&(

D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e@@@@@@Qpkt'H(%N4'rS/%%o_.Yp(qO3 q vg5 2&(

D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8@@@@@@@@@@@@@@@@     1pn G%%9I@h. / \@h.A0 Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Market Structure

 w  2&(

Market demand and market supply sets the price

3D ~oa2&(

Pulp Industry or Market

"4@ {o2&(

Numerous Competitors

 Kz xo2&(

Identical Product

 Mr pg* 2&(

Easy Entry

 MD qg+ 2&(

Price Taker

 &E k_M_`2&(

Price

  D qg)/ 2&(

Q in tonnes

7 w `2&(

The firm faces a fixed price as set by the market

The firm's demand curve is perfectly elastic

The firm's marginal revenue equals its price

BE k_M_`2&(

Price

tF qg'w 2&(

q in tonnes

; j_K`2&(

$261

r ug3 2&(

Individual Firm

j4@pk(%.b2e>u ,.Yp(R>lZQlq.18pyFy8b\iu"ڸ %Ɛ. mO| ȶE16yj=h66\vy< F QHh {_9N#gցj3i1r0,1gӳb0`ڌ@#@ lp.Flvy< F QHhȽ9ϧgQ@`F| ͤ4ggӳ`"t`Fvy< VZ669N#gց\Jуfcg3lz0 {lC9N#gցj3i1r/mg3lz10mFm 0.Ev};D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8 fW_ 2&(

1

@@@@@@pkB(%.Y\.QLXvyFy8b\.|%Ƈ#iGMus'~@-u< ò8E16yj=h66\jQ6s;>F-Gf ]^j0`ڌ@#@ lv};F-Gfcg3rOg3lz10mFm 0.Ee(j3i16yj=hȬ0mFm 6s;>F-G ͤ4ggӳ`"Ҵ`Fvy< Y669N#gց\F-G.Jvy< F QHh?!ϧgQ@`F&6#69N#gցh$fcg3lz10m^tggӳb0`ڌ@#@ `\{vy< F QHh {p9N#gցj3i1r0.Wgӳb0`ڌ@#@ lp.Iͤ4ggӳb0`?AϧgQ@`F vg5 2&(

D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8 fW_ 2&(

1

 fW_ 2&(

2

@@@@@@pk'(%.Y\.QLXvyFy8b\.|%Ƈ#iGMus8~IK \:K\7@ɰE16yj=h66\jQ6s;>F-Gf q\4ggӳb0`ڌ@rKF QHhϧgQ@.I v};F-Gfc^ggӳb0`ڌ@#@ `\vy< F QHh caR3i16yj=h6rO\g3lz10mFm 0.Iv};F-Gc ͤ4ggӳ`"`Fvy< VZV669N#gց\1уfcg3lz0 g9N#gցj3i1r/mg3lz10mFm 0.Iͤ4ggӳb0`BuN#gցj3i1'36yj=h66$ۤfcg3lz10m،@#@ lv};D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8 fW_ 2&(

1

 fW_ 2&(

2

 fW_ 2&(

3

+@@@@@@pk'(%.Y\$O2w%2s my8 \7/'3z qQlp.4p\A.\qߢPq gSp+\ɰE16yj=h66\jQ6s;>F-Gf q\4ggӳb0`ڌ@rKF QHhϧgQ@.I v};F-Gfc^ggӳb0`ڌ@#@ `\vy< F QHh caR3i16yj=h6rO\g3lz10mFm 0.Iv};F-Gc ͤ4ggӳ`"`Fvy< VZV669N#gց\1уfcg3lz0 g9N#gցj3i1r/mg3lz10mFm 0.Iͤ4ggӳb0`BuN#gցj3i1'36yj=h66$ۤfcg3lz10m،@#@ lv};D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8 fW_ 2&(

1

 fW_ 2&(

2

 fW_ 2&(

3

+ rg3 2&(

P = MR =$261

*@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@     ;pkG%(%&'1N(q nQL]\t:\.%!Z\7Kl'G= poNR= Ɛ. h;}K7K4\v2\i\ | ɰE16yj=h66\jQ6s;>F-Gf q\4ggӳb0`ڌ@rKF QHhϧgQ@.I v};F-Gfc^ggӳb0`ڌ@#@ `\vy< F QHh caR3i16yj=h6rO\g3lz10mFm 0.Iv};F-Gc ͤ4ggӳ`"`Fvy< VZV669N#gց\1уfcg3lz0 g9N#gցj3i1r/mg3lz10mFm 0.Iͤ4ggӳb0`BuN#gցj3i1'36yj=h66$ۤfcg3lz10m،@#@ lv};Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Market Structure

 w  2&(

Market demand and market supply sets the price

3D ~oa2&(

Pulp Industry or Market

"4@ {o2&(

Numerous Competitors

 Kz xo2&(

Identical Product

 Mr pg* 2&(

Easy Entry

 MD qg+ 2&(

Price Taker

 &E k_M_`2&(

Price

  D qg)/ 2&(

Q in tonnes

7 w `2&(

The firm faces a fixed price as set by the market

The firm's demand curve is perfectly elastic

The firm's marginal revenue equals its price

BE k_M_`2&(

Price

tF qg'w 2&(

q in tonnes

; j_K`2&(

$261

r ug3 2&(

Individual Firm

j4@ o2(

Monopoly: Market Structure

ܸ_ vg5 2&(

D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8 fW_ 2&(

1

 fW_ 2&(

2

 fW_ 2&(

3

+ rg3 2&(

P = MR =$261

* o2&(

Single Seller: Firm is the Industry

isׂ@+ZS @Cֿ@ `@;;@]}]|f@@98N@@5@@­¬@ed @=;0>@@=5>@$Ȓd=.?@5=(?`@FA="?@W`=@0@h<=@@y=@@ʼn= pAP@Śi=XA@ū9q@@żF9Q @j9! @F#9 @$9@ o2&(

Single Seller: Firm is the Industry

Ї@@@@@@      Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Market Structure

 w  2&(

Market demand and market supply sets the price

3D ~oa2&(

Pulp Industry or Market

"4@ {o2&(

Numerous Competitors

 Kz xo2&(

Identical Product

 Mr pg* 2&(

Easy Entry

 MD qg+ 2&(

Price Taker

 &E k_M_`2&(

Price

  D qg)/ 2&(

Q in tonnes

7 w `2&(

The firm faces a fixed price as set by the market

The firm's demand curve is perfectly elastic

The firm's marginal revenue equals its price

BE k_M_`2&(

Price

tF qg'w 2&(

q in tonnes

; j_K`2&(

$261

r ug3 2&(

Individual Firm

j4@ o2(

Monopoly: Market Structure

ܸ_ o2&(

Single Seller: Firm is the Industry

Ї vg5 2&(

D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8 fW_ 2&(

1

 fW_ 2&(

2

 fW_ 2&(

3

+ rg3 2&(

P = MR =$261

* o2&(

No Close Substitute Product

krv@S@!G@@==I@]=]<|J@}]}\daL@L!N@3P@Q@aS@=:U@@=4U@/$=.V @?6=(V@OF="W@_X=Wp@oh=xW@x=`XP@ŏ= `X@ş=HY0@ů9qf@ſ9ah@9Aj@9k@9m@ o2&(

No Close Substitute Product

з @@@@@@      Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Market Structure

 w  2&(

Market demand and market supply sets the price

3D ~oa2&(

Pulp Industry or Market

"4@ {o2&(

Numerous Competitors

 Kz xo2&(

Identical Product

 Mr pg* 2&(

Easy Entry

 MD q g+ 2&(

Price Taker

 &E k _M_`2&(

Price

  D q g)/ 2&(

Q in tonnes

 7  w `2&(

The firm faces a fixed price as set by the market

The firm's demand curve is perfectly elastic

The firm's marginal revenue equals its price

 BE k _M_`2&(

Price

 tF qg'w 2&(

q in tonnes

; j_K`2&(

$261

r ug3 2&(

Individual Firm

j4@ o2(

Monopoly: Market Structure

ܸ_ o2&(

Single Seller: Firm is the Industry

Ї o2&(

No Close Substitute Product

з  vg5 2&(

D for all buyers

?#4 zg? 2&(

S for all pulp firms

<e j_K`2&(

$261

  rg-G 2&(

Price =$261

8 fW_ 2&(

1

 fW_ 2&(

2

 fW_ 2&(

3

+ rg3 2&(

P = MR =$261

* wg> 2&(

Barriers to Entry

 O׸(@ ѓT3@ @@ 5]5\A@ UUa@ vUvTqa@ іX@@ ML?@ &@ ED @ ^/==(i0@ O=6i@ ,ږm=0j@ ==*k@@ MV=$Hk@ ]=l@ mҶ=m0@ ~=m@ ŎN'= Xn@ ŞF= o0@ Ůe9ѿ@ ſ߄9Q@@ F9@ ߄9a@ 9@@  wg> 2&(

Barriers to Entry

 @@@@@@       Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Market Structure

 w  2&(

Market demand and market supply sets the price

 3D ~!oa2&(

Pulp Industry or Market

!"4@ {"o2&(

Numerous Competitors

 "Kz x#o2&(

Identical Product

 #Mr p$g* 2&(

Easy Entry

 $MD q%g+ 2&(

Price Taker

 %&E k&_M_`2&(

Price

 & D q'g)/ 2&(

Q in tonnes

'7 (w `2&(

The firm faces a fixed price as set by the market

The firm's demand curve is perfectly elastic

The firm's marginal revenue equals its price

(BE k)_M_`2&(

Price

)tF q*g'w 2&(

q in tonnes

*; j+_K`2&(

$261

+r u,g3 2&(

Individual Firm

,j4@ -o2(

Monopoly: Market Structure

-ܸ_ .o2&(

Single Seller: Firm is the Industry

.Ї /o2&(

No Close Substitute Product

/з  w0g> 2&(

Barriers to Entry

0 v1g5 2&(

D for all buyers

1?#4 z2g? 2&(

S for all pulp firms

2<e j3_K`2&(

$261

3  r4g-G 2&(

Price =$261

48 f5W_ 2&(

1

5 f6W_ 2&(

2

6 f7W_ 2&(

3

7+ r8g3 2&(

P = MR =$261

 8* t9g9o 2&(

Price Searcher

!9@!=1=0!@!ZZA@!xx@!@!o@@!utV!@!=@!=I }@@!f3=B~@!# =<~@!1ژ=6@!@I=0`@!ON=*(`@!^=#0@!l`=ȃ@!{z=@!Ŋ2=h@!Řv= 0p@!ŧ=@@!Ŷ`09@@!92@!9"@!F9r&@!H9)@! t:g9o 2&(

Price Searcher

!:@@@      !;x5Ś$a(%u=Hv1O8BFG̡\.E2us`!ҎdpˆܖhhApn ߉.]qIƟy(Kzr@h.4p\@.A_\DHvΧ \@kr 69N#GkQ@` @#@ lv};<G.Mr(9N#gցj3i8Ecg3lz10mFm ȣ@ lv};Qfcg3lz0 Yf:0`ڌ@#@ lv};F-G'y36yj=h66"؆s;>F-GfcH@#@ lv};F-G.Iͤ4ggӳb0`ȽϧgQ@`F36yj=h66"s;>F-Gfc`\ϧgQ@`F\HhϧgQ@` r9N#gցj3i1rngӳb0`ڌ@#@ lp.M~9N#gցj3iɺşN#gցj3i156.#69N#gցh&ȴhϧgQ@`YϧgQ@`F\ ;Ѡ6s;>F-Gf ui[>F-Gfcg3rjmVFm 6s;>F-G.M9N#gցj3iɺN#gցj3i16@ lv};Figure 7: Animated Review: Perfect Competition vs. Monopoly

< =w  02(

Perfect Competition: Market Structure

= >w  2&(

Market demand and market supply sets the price

>3D ~?oa2&(

Pulp Industry or Market

?"4@ {@o2&(

Numerous Competitors

 @Kz xAo2&(

Identical Product

 AMr pBg* 2&(

Easy Entry

 BMD qCg+ 2&(

Price Taker

 C&E kD_M_`2&(

Price

 D D qEg)/ 2&(

Q in tonnes

E7 Fw `2&(

The firm faces a fixed price as set by the market

The firm's demand curve is perfectly elastic

The firm's marginal revenue equals its price

FBE kG_M_`2&(

Price

GtF qHg'w 2&(

q in tonnes

H; jI_K`2&(

$261

Ir uJg3 2&(

Individual Firm

Jj4@ Ko2(

Monopoly: Market Structure

Kܸ_ Lo2&(

Single Seller: Firm is the Industry

LЇ Mo2&(

No Close Substitute Product

Mз  wNg> 2&(

Barriers to Entry

N tOg9o 2&(

Price Searcher

O@ {PoM2&(

Firm sets the price

Pq= |Qw 2&(

The firm is the same as the industry

The firm faces a downward sloping demand curve

The firm's marginal revenue is below its price

Qc vRg5 2&(

D for all buyers

R?#4 zSg? 2&(

S for all pulp firms

S<e jT_K`2&(

$261

T  rUg-G 2&(

Price =$261

U8 fVW_ 2&(

1

V fWW_ 2&(

2

 W fXW_ 2&(

3

!X+ rYg3 2&(

P = MR =$261

"Y* kZ_M_`2&(

Price

#ZB q[g)/ 2&(

Q in tonnes

$[X@\zd=DR(%%x[^ c69N#GkQ@` p֣ցj3i10/CR3i14x F @RHj3i14x 3l< F QHh Њ@#@ lv};<G/@Ps9NF3Q@`FAWͤ4ggӳz10m1

&] j^_K`2&(

$300

'^Rt @@@@@@&'_zdjDR(%ϊ{@e s4x F QHh @#@ lv};<G/CQ3i14x F @ !Rͤ4ggӣѰ }J0`zsgӳz10mFm 6s8*AFvy<ZZ# ^ s;>F-GfcRH#69N#gցh(9ϧG`b0`ڌ@#@ `^Pfcg3h j=h6zƒHhϧG`b0`' Fm lv};<G/BT3i14x F @AWͤ4ggӳz10mF֣ցj3i1{ͤ4ggӳz10meF@ lv};<Gf џϧg5b0`ڌ@#@ lp/F8c3i14x F @vy<ZZ# ͤ4gclc69N#GkQ@` ѕ14x F QH/F|j>F֣ցj3i1Qx9N#GkQ@`9ۣ69N#GkQ@` ggӳz10mFm 0/C`9N#GkQ@`F!v};<Gfc8FC# ͤ4ggӳz0 b@#@ lv};<G/Cg9N#GkQ@`F!v};<Gfc<4x F QHh @#@ lv};<G/CmZ3i14x F @!v};<Gfc<4x F QHh ggӳz10mFm 0/F|m?>F֣ցj3i1Xͤ4ggӳz10meG@ lv};<Gf џ{ϧg5b0`ڌ@#@ lp%_ f`W_ 2&(

1

&` ja_K`2&(

$300

'aRt  fbW_ 2&(

2

(b jc_K`2&(

$250

)cR @@@@@@&'()dzd$R(%%Iy99ҌԎ+zd@e s4x F QHh @#@ lv};<G/CQ3i14x F @ aRͤ;ϧg5b0`Rgӳz10mFm 6s8)͟N#GkQ@`F^ fcg3h j=h6z$vy< F QHh H @#@ lv};gցj3i1zBHhϧg5b0` Fm 6s;>gցhn*5cg3h j=h66^fcg3h j=h6zHhϧg5b0`' 0Fm lv};<G/CV3i14x F @A^ͤ4ggӳz10m=Ep\vy<ZZ1vq-j3i1F @#@ lv};<G/BY3i1lF-G/DY9N#gցj3i1z/BHhϧg5b0`ʊFvy<ZZ# ͤ>+MN#GkQ@`F^hϧg5b0`ڌ@z34x F QHh 0Fm 6s;>F-G/FpY<gh j=h6690mFm 6s;> ю@#@ lv};<G/HY3i14x F @ g4x F QHw9N)7gӳb0`ڌ@#@ lp/IZF3i16yj=h6zHBޱHhϧgQ@` BY@#@ lv};F֣ցh>2N#GkQ@`F^p͌fcg3h j=h6z2A6s;>F֣ցj3iύCӳz10mFm 6s8*5cg3h j=h66^lfcg3lz10molz10mFm 6s84cg3lz10mFm $89N#gցj3i! nm 6s;>F-G/C]3i14x F @!},v};<Gfc< 4x F QHh ggӳz10mFm 0/Cd20`ڌ@#@ lv};<GA(ͤ4ggӳz10mF-G/F|m?>F֣ցj3i1Xͤ4ggӳz10meG@ lv};<Gf џ{ϧg5b0`ڌ@#@ lp%d feW_ 2&(

1

&e jf_K`2&(

$300

'fRt  fgW_ 2&(

2

(g jh_K`2&(

$250

)hR  fiW_ 2&(

3

*iX jj_K`2&(

$200

+jR@@@@@&'()*+okz1

&l jm_K`2&(

$300

'mRt  fnW_ 2&(

2

(n jo_K`2&(

$250

)oR  fpW_ 2&(

3

*pX jq_K`2&(

$200

+qR irb1G 2&(

D

,r@@@@@@@&'()*+,\sz1

&t ju_K`2&(

$300

'uRt  fvW_ 2&(

2

(v jw_K`2&(

$250

)wR  fxW_ 2&(

3

*xX jy_K`2&(

$200

+yR gzW 2&(

MR

,z( i{b1G 2&(

D

-{@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@      !"#$%&'()*+,- |Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

| {}vKlrh2&(

LONG-RUN BEHAVIOUR

}B@@@@@@@@@@@@@@@@@@@@@@@~pn #*(((%(ʱ2B;jb\< :=H\s N{L J+М!@h. /kΜJϘB#2*`xqP-hN$R0Br3*2 0\*Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

  pj* 2&(

Easy entry leads to long-run normal profit

i ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

?pn @S14x F QH.Zp9N#GkQ@`Wϧg5b0`ڌ@#@ lp.Z}X9N#GkQ@`XMϧg5b0`ڌ@#@ lp.Z9N#GkQ@`@#@ lv};<G.ZUvy<ZZ# ͤ4gYɍ14x F QH.ZUvy<ZZ# ͤ4gڗ@#@ lv};<G.ZX9N#GkQ@`[mϧg5b0`ڌ@#@ lp.Z9N#GkQ@`\5ϧg5b0`ڌ@#@ lp.Yɘj3i14x >fM Jӡ` _Ha2(

SR

Profit

J gW 2&(

P1

wjl gW 2&(

P1

q gW 2&(

S1

8J. gW 2&(

q1

@@@@@@@@@@@@@@@@@@@@@@@@     pn #*(%(dYCQ  PEgTTǩӨÞ%ҨhN zr7S`KQ`xqP-hĮK(s+6 Y>6 \ʌsH !؀\aݩ Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

  w 2&(

New firms enter and compete away the short-run profit.

p pj* 2&(

Easy entry leads to long-run normal profit

i ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

?apqLQ$˜fM(%lIs&D #ƬpKuKJmi ̷R([2VtRW ж7 gW 2&(

P2

s gW 2&(

S1

8J. gW 2&(

S2

A L gW 2&(

P2

@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@     pn #*(%(dYCQ  PEgTTǩӨÞ%ҨhN zr7S`KQ`xqP-hĮK(s+6 Y>6 \ʌsH !؀\aݩ Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

  hW 2&(

qLR

s w e 2&(

Long-run: Price just equals ATC - Normal Profits

s w 2&(

New firms enter and compete away the short-run profit.

p pj* 2&(

Easy entry leads to long-run normal profit

i ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

$p{Ly$h(%ͭ.d ht.lb h6[pƋhs;2rR"\<2KncKnU| -S14x F QH.Vp9N#GkQ@`sϧg5b0`ڌ@#@ lp.V}X9N#GkQ@`sMϧg5b0`ڌ@#@ lp.V9N#GkQ@`k@#@ lv};<G.W9vy<ZZ# ͤ4gnɍ14x F QH.W9vy<ZZ# ͤ4gk@#@ lv};<G.VX9N#GkQ@`smϧg5b0`ڌ@#@ lp.V9N#GkQ@`s5ϧg5b0`ڌ@#@ lp.Vɘj3i14x  i_C`2&(

PLR

tJ߀ gW 2&(

S1

8J. gW 2&(

S2

A L i_C`2&(

PLR

 " i_C`2&(

SLR

I*b@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@     pn #*(%Ҩ,icԇ{~ia¸ QdY QМjlpoNRv 4#2+#[Cz)]9Qt}д.eaW|qMȝߕyvPPfTe@dtî \@h Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

  hW 2&(

qLR

s pj* 2&(

Easy entry leads to long-run normal profit

i pj+ 2&(

In the long-run the firm is productively efficient

 w  2&(

Notice that the typical firm is producing at minimum ATC

k@ ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

=p{Ly(*h(%ͭ.d6\3so2[wHfM~  A*kȶrKxM9!.CfRZ@0`9,0Q1my -22僖r@`庸s.'@#@ lv};<G.W9x\vy<ZZ# ͤ4gnՍ14x F QH.W9vy<ZZ# ͤ4gn14x F QH.Vxͤ4ggӳz10msyϧg5b0`ڌ@#@ lp.V霘9N#GkQ@`sAϧg5b0`ڌ@#@ lp.Vxͤ4ggӳz10mn14x F QH.W9vy<ZZ# ͤ4gn14x F QH.W9\vy<ZZ# ͤ4gi669N#GkQ@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " i_C`2&(

SLR

I*b g&7 2&(

Productive

Efficiency

@@p{Ly(*h(%ͭ.d ǟ2[wHkE[Nk~P`%\ P _&.Ek[NI6).CfRZ@0`9J| .'@#@ lv};<G.W9x\vy<ZZ# ͤ4gnՍ14x F QH.W9vy<ZZ# ͤ4gn14x F QH.Vxͤ4ggӳz10msyϧg5b0`ڌ@#@ lp.V霘9N#GkQ@`sAϧg5b0`ڌ@#@ lp.Vxͤ4ggӳz10mn14x F QH.W9vy<ZZ# ͤ4gn14x F QH.W9\vy<ZZ# ͤ4gi669N#GkQ@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " i_C`2&(

SLR

I*b@@p{Ly(*h(%ͭ.d6\3so2[wHfM~  A*kȶr i8f%rLKH Yg3.'@#@ lv};<G.W9x\vy<ZZ# ͤ4gnՍ14x F QH.W9vy<ZZ# ͤ4gn14x F QH.Vxͤ4ggӳz10msyϧg5b0`ڌ@#@ lp.V霘9N#GkQ@`sAϧg5b0`ڌ@#@ lp.Vxͤ4ggӳz10mn14x F QH.W9vy<ZZ# ͤ4gn14x F QH.W9\vy<ZZ# ͤ4gi669N#GkQ@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " i_C`2&(

SLR

I*b&r -% - ]TU g&7 2&(

Productive

Efficiency

@@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " i_C`2&(

SLR

I*b@@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " i_C`2&(

SLR

I*b g&7 2&(

Productive

Efficiency

@@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " i_C`2&(

SLR

I*b@@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " i_C`2&(

SLR

I*b g&7 2&(

Productive

Efficiency

@@@@@@@@@@@@@@@@@@@@@@@@     pn #*(%-j%Ҩ,icԇ{~ia¸zoS]G\-BX"@\-27S` zrxTIr3*2*1Ÿ7_xӟ1i`8A.Wm JqUB\<|j> 5;*`젠% -mx %̨ 2\ajlr.Zv 4,&X Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

  hW 2&(

qLR

s pj* 2&(

Easy entry leads to long-run normal profit

i ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

 g&7 2&(

Productive

Efficiency

 w 2&(

In the long-run the industry is allocatively efficient

\f w  2&(

Notice that the industry quantity is where Supply = Demand so

for the last unit produced we have MC = Price

4: pj+ 2&(

In the long-run the firm is productively efficient

p{Ly(*h(Î-$%Ap S8X̢\>b;*4fv%}Yg3|_\?_2p͊K堙cɇmӹ.'@#@ lv};<G.W9x\vy<ZZ# ͤ4gnՍ14x F QH.W9vy<ZZ# ͤ4gn14x F QH.Vxͤ4ggӳz10msyϧg5b0`ڌ@#@ lp.V霘9N#GkQ@`sAϧg5b0`ڌ@#@ lp.Vxͤ4ggӳz10mn14x F QH.W9vy<ZZ# ͤ4gn14x F QH.W9\vy<ZZ# ͤ4gi669N#GkQ@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b )g"2&(

Allocative

Efficiency

S = D

-*0p.%.(n.ā%.r@@p{Ly(*h(Î-$%Ap S8X̢\>b;*4fv%}Yg3|_\?_2p͊K堙cɇmӹ.'@#@ lv};<G.W9x\vy<ZZ# ͤ4gnՍ14x F QH.W9vy<ZZ# ͤ4gn14x F QH.Vxͤ4ggӳz10msyϧg5b0`ڌ@#@ lp.V霘9N#GkQ@`sAϧg5b0`ڌ@#@ lp.Vxͤ4ggӳz10mn14x F QH.W9vy<ZZ# ͤ4gn14x F QH.W9\vy<ZZ# ͤ4gi669N#GkQ@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b@@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b )g"2&(

Allocative

Efficiency

S = D

-*@@ i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j _]`2&(

S=MC

 I*b@@ i _C`2&(

PLR

 tJ߀ i _C`2&(

PLR

  " j _]`2&(

S=MC

 I*b ) g"2&(

Allocative

Efficiency

S = D

 -*@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@     pn #*(%-%Ҩe,iԋ{~ia¸zoS]G\-BX!@\-27S` zrxTIr3*2*1Ÿ7_xӟ1i`8A.WmJqUB\<|j> 5;*`젠% -x %̨q 2\ajlr.Zv 4,&X Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

  hW 2&(

qLR

s pj* 2&(

Easy entry leads to long-run normal profit

i ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

 g&7 2&(

Productive

Efficiency

 w 2&(

In the long-run the industry is allocatively efficient

\f pj+ 2&(

In the long-run the firm is productively efficient

 i_C`2&(

PLR

tJ߀ i _C`2&(

PLR

  " j!_]`2&(

S=MC

!I*b )"g"2&(

Allocative

Efficiency

S = D

"-*@@@@@@@@@@@@@@@@@@@@@@@@@     #x7ideN_(%ώ9-nZAs.Kv0h(x T-\y!3ԣz=jbyp\,ꊘ"߀ZusdZU] pKlޜ@h. /fTeTcp(oZ2+>bq .\*yn=}7k"w~U<9A@K[KQ@d-M.X!nMD# $Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ %w  02(

Perfect Competition: Long-run Behaviour

% k&_M_`2&(

Price

& + q'g)/ 2&(

Q in tonnes

'7 k(_M_`2&(

Price

 (tF q)g'w 2&(

q in tonnes

 ); f*Wt 2&(

D

 *YkH i+_B`2&(

ATC

 +2 g,W 2&(

MC

 , h-W 2&(

qLR

-s .pj* 2&(

Easy entry leads to long-run normal profit

.i ~/oa2&(

Pulp Industry or Market

/D' u0g3 2&(

Individual Firm

0 1g&7 2&(

Productive

Efficiency

1 2w 2&(

In the long-run the industry is allocatively efficient

2\f 3pj+ 2&(

In the long-run the firm is productively efficient

3 4o2(

Monopoly: Long-run Behaviour

4_ 5pj, 2&(

Barriers to entry leads to long-run excess profit

5 6o2&(

Q =q = 00's tonnes

60 g7W 2&(

qm

7h 8_[a[2&(

$ per

tonne

8! 9o 2&(

Individual Firm = Industry

9dq:x=dV(("%S;;h4bi )@!_Mǘ<ŲLC&-݌1$}|. ˤ2B\z0Ec:)z2ZHXZ8U935Ľ'zN9N< ҧooLK#Љ@RAT0>eؚxT\awjhpKĕ}Yg3|/m 3b9h&e5a\w#>| .'@#@ lv};<G.W9x\vy<ZZ# ͤ4gnՍ14x F QH.W9vy<ZZ# ͤ4gn14x F QH.Vxͤ4ggӳz10msyϧg5b0`ڌ@#@ lp.V霘9N#GkQ@`sAϧg5b0`ڌ@#@ lp.Vxͤ4ggӳz10mn14x F QH.W9vy<ZZ# ͤ4gn14x F QH.W9\vy<ZZ# ͤ4gi669N#GkQ@: i;_C`2&(

PLR

;tJ߀ i<_C`2&(

PLR

< " j=_]`2&(

S=MC

=I*b >g"2&(

Allocative

Efficiency

S = D

>-*  g?W 2&(

MC

!? h@W 2&(

MR

"@` Aw  2&(

Monopolist operates at qm where MR = MC

#AL@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@      !"#Bx7keN_((%ώ9-nZAs.Kv0h(x T-\y!3ԣz=jbyp\,ꊘ"߀ZusdZU] pKlޜ@h. /fTeTcp(oZ2+>bq .\*yn=}7k"w~U<9A@K[KQ@d-M.X!nMDB CȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

C Dw  02(

Perfect Competition: Long-run Behaviour

D kE_M_`2&(

Price

E + qFg)/ 2&(

Q in tonnes

F7 kG_M_`2&(

Price

 GtF qHg'w 2&(

q in tonnes

 H; fIWt 2&(

D

 IYkH iJ_B`2&(

ATC

 J2 gKW 2&(

MC

 K hLW 2&(

qLR

Ls Mpj* 2&(

Easy entry leads to long-run normal profit

Mi ~Noa2&(

Pulp Industry or Market

ND' uOg3 2&(

Individual Firm

O Pg&7 2&(

Productive

Efficiency

P Qw 2&(

In the long-run the industry is allocatively efficient

Q\f Rpj+ 2&(

In the long-run the firm is productively efficient

R So2(

Monopoly: Long-run Behaviour

S_ Tpj, 2&(

Barriers to entry leads to long-run excess profit

T U_[a[2&(

$ per

tonne

U! Vo2&(

Q =q = 00's tonnes

V0 gWW 2&(

qm

WhXx=4dV((#%lj=AN`FA&d! ,(k%F]-PLR

YtJ߀ iZ_C`2&(

PLR

Z " j[_]`2&(

S=MC

[I*b \g"2&(

Allocative

Efficiency

S = D

\-* g]W 2&(

MC

 ] h^W 2&(

MR

!^` g_W 2&(

Pm

"_RA f`Wt 2&(

D

#`8 ao 2&(

Individual Firm = Industry

$adq ib_C`2&(

PLR

%btJ߀ ic_C`2&(

PLR

&c " jd_]`2&(

S=MC

'dI*b eg"2&(

Allocative

Efficiency

S = D

(e-*) gfW 2&(

MC

*f hgW 2&(

MR

+g` hw  2&(

Price is set at Pm based on the demand curve

,hL@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@      !"#$%&'(*+,ix7keN_((%ώ9-nZAs.Kv0h(x T-\y!3ԣz=jbyp\,ꊘ"߀ZusdZU] pKlޜ@h. /fTeTcp(oZ2+>bq .\*yn=}7k"w~U<9A@K[KQ@d-M.X!nMDi jȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

j kw  02(

Perfect Competition: Long-run Behaviour

k kl_M_`2&(

Price

l + qmg)/ 2&(

Q in tonnes

m7 kn_M_`2&(

Price

 ntF qog'w 2&(

q in tonnes

 o; fpWt 2&(

D

 pYkH iq_B`2&(

ATC

 q2 grW 2&(

MC

 r hsW 2&(

qLR

ss tpj* 2&(

Easy entry leads to long-run normal profit

ti ~uoa2&(

Pulp Industry or Market

uD' uvg3 2&(

Individual Firm

v wg&7 2&(

Productive

Efficiency

w xw 2&(

In the long-run the industry is allocatively efficient

x\f ypj+ 2&(

In the long-run the firm is productively efficient

y zo2(

Monopoly: Long-run Behaviour

z_ {pj, 2&(

Barriers to entry leads to long-run excess profit

{ |_[a[2&(

$ per

tonne

|! }o2&(

Q =q = 00's tonnes

}0 g~W 2&(

qm

~h?\x=5VfM((#%I/zQ,Q^^ - 03!xuH<|J)NFPR9P+f2\* P9ixKҍyȂ^PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* gW 2&(

MC

  hW 2&(

MR

!` gW 2&(

Pm

"A fWt 2&(

D

#8 o 2&(

Individual Firm = Industry

$dq i_C`2&(

PLR

%tJ߀ i_C`2&(

PLR

& " j_]`2&(

S=MC

'I*b g"2&(

Allocative

Efficiency

S = D

(-* gW 2&(

MC

* hW 2&(

MR

+` w  2&(

Excess profit as Pm exceeds ATCm

Long-run: Barriers to entry protects this profit

,L j_\?`2&(

ATCm

-Ҋ` _a?a*2&(

Excess

Profit

.ZS i_B`2&(

ATC

/|x@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@      !"#$%&'()*+,-./pn #*(%-j%(dYC(ަ`Z^B, :=Hx.F.F[Bp\Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

  hW 2&(

qLR

s pj* 2&(

Easy entry leads to long-run normal profit

i ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

 g&7 2&(

Productive

Efficiency

 w 2&(

In the long-run the industry is allocatively efficient

\f pj+ 2&(

In the long-run the firm is productively efficient

 o2(

Monopoly: Long-run Behaviour

_ pj, 2&(

Barriers to entry leads to long-run excess profit

 w  2&(

Monopolies can be productively inefficient

帻 \w 2&(

Productive efficiency means minimum ATC

To maximize profit,monopoly produces at qm with

a higher ATCm.

`x7k$_(((#b9Y spy%d z.bLFJQ4 =r^zM#Ir-ԩiFNTbrQgL.HycizXcm L\U!F֣ցj3i1sJFtz6ZZ# ͤ+iϧg5b0`ڌ@#@ `^hthϧG``8m34x F QHh Щg3h j=h66^8thϧg5b0`ڌ@z:Ѡ6s;>F֣ցj3i g3lz10mFm 0/EV4ggӳb0`ڌ@zZ¶tz6ZZ# ͤ4R g3lz10mFm 0/KWr3i16yj=h6zNBvy< F QHh 914xR66^0fcg3lz10m36yj=h66.Fvy< F @m#69NF3Q@` l@#@ lv};F-Gfc #69N#gցh11ϧgQ@`F/Av};F-G/Kg9N#gցj3i1z\EHhϧgQ@` 16yj=h66^0ׄfcg3lz10m#69N#gցh7qϧgQ@`F.aͤ4ggӳb0`v=Fvy< F QH.Vq8ͤ4ggӳz10msϧg5b0`ڌ@#@ lp.V}X9N#GkQ@`sMϧg5b0`ڌ@#@ lp.V9N#GkQ@`k@#@ lv};<G.W9vy<ZZ# ͤ4gnɍ14x F QH.W9vy<ZZ# ͤ4gk@#@ lv};<G.VX9N#GkQ@`smϧg5b0`ڌ@#@ lp.V9N#GkQ@`s5ϧg5b0`ڌ@#@ lp.Vɘj3i14x  i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

  " j_]`2&(

S=MC

!I*b g"2&(

Allocative

Efficiency

S = D

"-*# Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ w  02(

Perfect Competition: Long-run Behaviour

% k_M_`2&(

Price

& + qg)/ 2&(

Q in tonnes

'7 k_M_`2&(

Price

(tF qg'w 2&(

q in tonnes

); fWt 2&(

D

*YkH i_B`2&(

ATC

+2 gW 2&(

MC

, hW 2&(

qLR

-s pj* 2&(

Easy entry leads to long-run normal profit

.i ~oa2&(

Pulp Industry or Market

/D' ug3 2&(

Individual Firm

0 g&7 2&(

Productive

Efficiency

1 w 2&(

In the long-run the industry is allocatively efficient

2\f pj+ 2&(

In the long-run the firm is productively efficient

3 o2(

Monopoly: Long-run Behaviour

4_ _[a[2&(

$ per

tonne

5! i_B`2&(

ATC

6~ i_C`2&(

PLR

7tJ߀ i_C`2&(

PLR

8 " j_]`2&(

S=MC

9I*b g"2&(

Allocative

Efficiency

S = D

:-*; o 2&(

Individual Firm = Industry

<dq i_C`2&(

PLR

=tJ߀ i_C`2&(

PLR

> " j_]`2&(

S=MC

?I*b g"2&(

Allocative

Efficiency

S = D

@-*A gW 2&(

MC

BX l_t?`2&(

minATC

Cҩ g_2&(

Monopoly

NOT at

min ATC

D82z8Z%Z;^,Vш^(vE h_C`2&(

qm

F j_\?`2&(

ATCm

G  g& 2&(

q

efficiency

H`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEFGHx7k$_(((#b9Y spy%d z.bLFJQ4 =r^zM#Ir-ԩiFNTbrQgL.HycizXcm L\U!w9}p h#_2p͊i#  T.=q Q%ΨE߀ZusfxϑǓ o pK=MpK"K <jlpoNRv 4!EKo ցLJϘB+hC_`_uQT%̬#xQnqWe.XInG(*[2@i؀\Bܛ‰g;c@ lv};F֣ցj3i1sJFtz6ZZ# ͤ+iϧg5b0`ڌ@#@ `^hthϧG``8m34x F QHh Щg3h j=h66^8thϧg5b0`ڌ@z:Ѡ6s;>F֣ցj3i g3lz10mFm 0/EV4ggӳb0`ڌ@zZ¶tz6ZZ# ͤ4R g3lz10mFm 0/KWr3i16yj=h6zNBvy< F QHh 914xR66^0fcg3lz10m36yj=h66.Fvy< F @m#69NF3Q@` l@#@ lv};F-Gfc #69N#gցh11ϧgQ@`F/Av};F-G/Kg9N#gցj3i1z\EHhϧgQ@` 16yj=h66^0ׄfcg3lz10m#69N#gցh7qϧgQ@`F.aͤ4ggӳb0`v=Fvy< F QH.Vq8ͤ4ggӳz10msϧg5b0`ڌ@#@ lp.V}X9N#GkQ@`sMϧg5b0`ڌ@#@ lp.V9N#GkQ@`k@#@ lv};<G.W9vy<ZZ# ͤ4gnɍ14x F QH.W9vy<ZZ# ͤ4gk@#@ lv};<G.VX9N#GkQ@`smϧg5b0`ڌ@#@ lp.V9N#GkQ@`s5ϧg5b0`ڌ@#@ lp.Vɘj3i14x  i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

  " j_]`2&(

S=MC

!I*b g"2&(

Allocative

Efficiency

S = D

"-* Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ w  02(

Perfect Competition: Long-run Behaviour

% k_M_`2&(

Price

& + qg)/ 2&(

Q in tonnes

'7 k_M_`2&(

Price

(tF qg'w 2&(

q in tonnes

); fWt 2&(

D

*YkH i_B`2&(

ATC

+2 gW 2&(

MC

, hW 2&(

qLR

-s pj* 2&(

Easy entry leads to long-run normal profit

.i ~oa2&(

Pulp Industry or Market

/D' ug3 2&(

Individual Firm

0 g&7 2&(

Productive

Efficiency

1 w 2&(

In the long-run the industry is allocatively efficient

2\f pj+ 2&(

In the long-run the firm is productively efficient

3 o2(

Monopoly: Long-run Behaviour

4_ _[a[2&(

$ per

tonne

5! i_B`2&(

ATC

6~ i_C`2&(

PLR

7tJ߀ i_C`2&(

PLR

8 " j_]`2&(

S=MC

9I*b g"2&(

Allocative

Efficiency

S = D

:-* o 2&(

Individual Firm = Industry

<dq i_C`2&(

PLR

=tJ߀ i_C`2&(

PLR

> " j_]`2&(

S=MC

?I*b g"2&(

Allocative

Efficiency

S = D

@-* gW 2&(

MC

BX l_t?`2&(

minATC

Cҩ h_C`2&(

qm

D j_\?`2&(

ATCm

E  g& 2&(

q

efficiency

F`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEF i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

  " j_]`2&(

S=MC

!I*b g"2&(

Allocative

Efficiency

S = D

"-* Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ w  02(

Perfect Competition: Long-run Behaviour

% k_M_`2&(

Price

& + q g)/ 2&(

Q in tonnes

' 7 k _M_`2&(

Price

( tF q g'w 2&(

q in tonnes

) ; f Wt 2&(

D

* YkH i _B`2&(

ATC

+ 2 gW 2&(

MC

, hW 2&(

qLR

-s pj* 2&(

Easy entry leads to long-run normal profit

.i ~oa2&(

Pulp Industry or Market

/D' ug3 2&(

Individual Firm

0 g&7 2&(

Productive

Efficiency

1 w 2&(

In the long-run the industry is allocatively efficient

2\f pj+ 2&(

In the long-run the firm is productively efficient

3 o2(

Monopoly: Long-run Behaviour

4_ _[a[2&(

$ per

tonne

5! i_B`2&(

ATC

6~ i_C`2&(

PLR

7tJ߀ i_C`2&(

PLR

8 " j_]`2&(

S=MC

9I*b g"2&(

Allocative

Efficiency

S = D

:-* o 2&(

Individual Firm = Industry

<dq i_C`2&(

PLR

=tJ߀ i_C`2&(

PLR

> " j _]`2&(

S=MC

? I*b !g"2&(

Allocative

Efficiency

S = D

@!-* g"W 2&(

MC

B"X l#_t?`2&(

minATC

C#ҩ $g_2&(

Monopoly

NOT at

min ATC

D$82%z8Z%Z;^,Vш^(vE% h&_C`2&(

qm

F& j'_\?`2&(

ATCm

G'  (g& 2&(

q

efficiency

H(`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEFGH i)_C`2&(

PLR

)tJ߀ i*_C`2&(

PLR

* " j+_]`2&(

S=MC

+I*b ,g"2&(

Allocative

Efficiency

S = D

,-* i-_C`2&(

PLR

-tJ߀ i._C`2&(

PLR

 . " j/_]`2&(

S=MC

!/I*b 0g"2&(

Allocative

Efficiency

S = D

"0-* 1Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$1 2w  02(

Perfect Competition: Long-run Behaviour

%2 k3_M_`2&(

Price

&3 + q4g)/ 2&(

Q in tonnes

'47 k5_M_`2&(

Price

(5tF q6g'w 2&(

q in tonnes

)6; f7Wt 2&(

D

*7YkH i8_B`2&(

ATC

+82 g9W 2&(

MC

,9 h:W 2&(

qLR

-:s ;pj* 2&(

Easy entry leads to long-run normal profit

.;i ~<oa2&(

Pulp Industry or Market

/<D' u=g3 2&(

Individual Firm

0= >g&7 2&(

Productive

Efficiency

1> ?w 2&(

In the long-run the industry is allocatively efficient

2?\f @pj+ 2&(

In the long-run the firm is productively efficient

3@ Ao2(

Monopoly: Long-run Behaviour

4A_ B_[a[2&(

$ per

tonne

5B! iC_B`2&(

ATC

6C~ iD_C`2&(

PLR

7DtJ߀ iE_C`2&(

PLR

8E " jF_]`2&(

S=MC

9FI*b Gg"2&(

Allocative

Efficiency

S = D

:G-* Ho 2&(

Individual Firm = Industry

<Hdq iI_C`2&(

PLR

=ItJ߀ iJ_C`2&(

PLR

>J " jK_]`2&(

S=MC

?KI*b Lg"2&(

Allocative

Efficiency

S = D

@L-* gMW 2&(

MC

BMX lN_t?`2&(

minATC

CNҩ hO_C`2&(

qm

DO jP_\?`2&(

ATCm

EP  Qg& 2&(

q

efficiency

FQ`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEF iR_C`2&(

PLR

RtJ߀ iS_C`2&(

PLR

S " jT_]`2&(

S=MC

TI*b Ug"2&(

Allocative

Efficiency

S = D

U-* iV_C`2&(

PLR

VtJ߀ iW_C`2&(

PLR

 W " jX_]`2&(

S=MC

!XI*b Yg"2&(

Allocative

Efficiency

S = D

"Y-* ZȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$Z [w  02(

Perfect Competition: Long-run Behaviour

%[ k\_M_`2&(

Price

&\ + q]g)/ 2&(

Q in tonnes

']7 k^_M_`2&(

Price

(^tF q_g'w 2&(

q in tonnes

)_; f`Wt 2&(

D

*`YkH ia_B`2&(

ATC

+a2 gbW 2&(

MC

,b hcW 2&(

qLR

-cs dpj* 2&(

Easy entry leads to long-run normal profit

.di ~eoa2&(

Pulp Industry or Market

/eD' ufg3 2&(

Individual Firm

0f gg&7 2&(

Productive

Efficiency

1g hw 2&(

In the long-run the industry is allocatively efficient

2h\f ipj+ 2&(

In the long-run the firm is productively efficient

3i jo2(

Monopoly: Long-run Behaviour

4j_ k_[a[2&(

$ per

tonne

5k! il_B`2&(

ATC

6l~ im_C`2&(

PLR

7mtJ߀ in_C`2&(

PLR

8n " jo_]`2&(

S=MC

9oI*b pg"2&(

Allocative

Efficiency

S = D

:p-* qo 2&(

Individual Firm = Industry

<qdq ir_C`2&(

PLR

=rtJ߀ is_C`2&(

PLR

>s " jt_]`2&(

S=MC

?tI*b ug"2&(

Allocative

Efficiency

S = D

@u-* gvW 2&(

MC

BvX lw_t?`2&(

minATC

Cwҩ xg_2&(

Monopoly

NOT at

min ATC

Dx82yz8Z%U;F"z8^(vEy hz_C`2&(

qm

Fz j{_\?`2&(

ATCm

G{  |g& 2&(

q

efficiency

H|`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEFGH i}_C`2&(

PLR

}tJ߀ i~_C`2&(

PLR

~ " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

  " j_]`2&(

S=MC

!I*b g"2&(

Allocative

Efficiency

S = D

"-* Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ w  02(

Perfect Competition: Long-run Behaviour

% k_M_`2&(

Price

& + qg)/ 2&(

Q in tonnes

'7 k_M_`2&(

Price

(tF qg'w 2&(

q in tonnes

); fWt 2&(

D

*YkH i_B`2&(

ATC

+2 gW 2&(

MC

, hW 2&(

qLR

-s pj* 2&(

Easy entry leads to long-run normal profit

.i ~oa2&(

Pulp Industry or Market

/D' ug3 2&(

Individual Firm

0 g&7 2&(

Productive

Efficiency

1 w 2&(

In the long-run the industry is allocatively efficient

2\f pj+ 2&(

In the long-run the firm is productively efficient

3 o2(

Monopoly: Long-run Behaviour

4_ _[a[2&(

$ per

tonne

5! i_B`2&(

ATC

6~ i_C`2&(

PLR

7tJ߀ i_C`2&(

PLR

8 " j_]`2&(

S=MC

9I*b g"2&(

Allocative

Efficiency

S = D

:-* o 2&(

Individual Firm = Industry

<dq i_C`2&(

PLR

=tJ߀ i_C`2&(

PLR

> " j_]`2&(

S=MC

?I*b g"2&(

Allocative

Efficiency

S = D

@-* gW 2&(

MC

BX l_t?`2&(

minATC

Cҩ h_C`2&(

qm

D j_\?`2&(

ATCm

E  g& 2&(

q

efficiency

F`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEF i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

  " j_]`2&(

S=MC

!I*b g"2&(

Allocative

Efficiency

S = D

"-* Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ w  02(

Perfect Competition: Long-run Behaviour

% k_M_`2&(

Price

& + qg)/ 2&(

Q in tonnes

'7 k_M_`2&(

Price

(tF qg'w 2&(

q in tonnes

); fWt 2&(

D

*YkH i_B`2&(

ATC

+2 gW 2&(

MC

, hW 2&(

qLR

-s pj* 2&(

Easy entry leads to long-run normal profit

.i ~oa2&(

Pulp Industry or Market

/D' ug3 2&(

Individual Firm

0 g&7 2&(

Productive

Efficiency

1 w 2&(

In the long-run the industry is allocatively efficient

2\f pj+ 2&(

In the long-run the firm is productively efficient

3 o2(

Monopoly: Long-run Behaviour

4_ _[a[2&(

$ per

tonne

5! i_B`2&(

ATC

6~ i_C`2&(

PLR

7tJ߀ i_C`2&(

PLR

8 " j_]`2&(

S=MC

9I*b g"2&(

Allocative

Efficiency

S = D

:-* o 2&(

Individual Firm = Industry

<dq i_C`2&(

PLR

=tJ߀ i_C`2&(

PLR

> " j_]`2&(

S=MC

?I*b g"2&(

Allocative

Efficiency

S = D

@-* gW 2&(

MC

BX l_t?`2&(

minATC

Cҩ g_2&(

Monopoly

NOT at

min ATC

D82z8Z%Z;^,Vш^(vE h_C`2&(

qm

F j_\?`2&(

ATCm

G  g& 2&(

q

efficiency

H`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEFGH i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

  " j_]`2&(

S=MC

!I*b g"2&(

Allocative

Efficiency

S = D

"-* Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ w  02(

Perfect Competition: Long-run Behaviour

% k_M_`2&(

Price

& + qg)/ 2&(

Q in tonnes

'7 k_M_`2&(

Price

(tF qg'w 2&(

q in tonnes

); fWt 2&(

D

*YkH i_B`2&(

ATC

+2 gW 2&(

MC

, hW 2&(

qLR

-s pj* 2&(

Easy entry leads to long-run normal profit

.i ~oa2&(

Pulp Industry or Market

/D' ug3 2&(

Individual Firm

0 g&7 2&(

Productive

Efficiency

1 w 2&(

In the long-run the industry is allocatively efficient

2\f pj+ 2&(

In the long-run the firm is productively efficient

3 o2(

Monopoly: Long-run Behaviour

4_ _[a[2&(

$ per

tonne

5! i_B`2&(

ATC

6~ i_C`2&(

PLR

7tJ߀ i_C`2&(

PLR

8 " j_]`2&(

S=MC

9I*b g"2&(

Allocative

Efficiency

S = D

:-* o 2&(

Individual Firm = Industry

<dq i_C`2&(

PLR

=tJ߀ i_C`2&(

PLR

> " j_]`2&(

S=MC

?I*b g"2&(

Allocative

Efficiency

S = D

@-* gW 2&(

MC

BX l_t?`2&(

minATC

Cҩ h_C`2&(

qm

D j_\?`2&(

ATCm

E  g& 2&(

q

efficiency

F`@@ !"$%&'()*+,-./0123456789:<=>?@BCDEF i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

  " j_]`2&(

S=MC

!I*b g"2&(

Allocative

Efficiency

S = D

"-* Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$ w  02(

Perfect Competition: Long-run Behaviour

% k_M_`2&(

Price

& + qg)/ 2&(

Q in tonnes

'7 k_M_`2&(

Price

(tF qg'w 2&(

q in tonnes

); fWt 2&(

D

*YkH i _B`2&(

ATC

+ 2 g W 2&(

MC

,  h W 2&(

qLR

- s pj* 2&(

Easy entry leads to long-run normal profit

. i ~ oa2&(

Pulp Industry or Market

/ D' ug3 2&(

Individual Firm

0 g&7 2&(

Productive

Efficiency

1 w 2&(

In the long-run the industry is allocatively efficient

2\f pj+ 2&(

In the long-run the firm is productively efficient

3 o2(

Monopoly: Long-run Behaviour

4_ _[a[2&(

$ per

tonne

5! i_B`2&(

ATC

6~ i_C`2&(

PLR

7tJ߀ i_C`2&(

PLR

8 " j_]`2&(

S=MC

9I*b g"2&(

Allocative

Efficiency

S = D

:-* o 2&(

Individual Firm = Industry

<dq i_C`2&(

PLR

=tJ߀ i_C`2&(

PLR

> " j_]`2&(

S=MC

?I*b g"2&(

Allocative

Efficiency

S = D

@-* gW 2&(

MC

BX l_t?`2&(

minATC

Cҩ  g_2&(

Monopoly

NOT at

min ATC

D 82!z8Z%U;F"z8^(vE! h"_C`2&(

qm

F" j#_\?`2&(

ATCm

G#  $g& 2&(

q

efficiency

H$`@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@      !"$%&'()*+,-./0123456789:;<=>?@ABCDEFGH%pn #*(%-%(cd9E(ަ`Z^B :=H.F.FWBp\Figure 7: Animated Review: Perfect Competition vs. Monopoly

& 'w  02(

Perfect Competition: Long-run Behaviour

' k(_M_`2&(

Price

( + q)g)/ 2&(

Q in tonnes

)7 k*_M_`2&(

Price

 *tF q+g'w 2&(

q in tonnes

 +; f,Wt 2&(

D

 ,YkH i-_B`2&(

ATC

 -2 g.W 2&(

MC

 . h/W 2&(

qLR

/s 0pj* 2&(

Easy entry leads to long-run normal profit

0i ~1oa2&(

Pulp Industry or Market

1D' u2g3 2&(

Individual Firm

2 3g&7 2&(

Productive

Efficiency

3 4w 2&(

In the long-run the industry is allocatively efficient

4\f 5pj+ 2&(

In the long-run the firm is productively efficient

5 6o2(

Monopoly: Long-run Behaviour

6_ 7pj, 2&(

Barriers to entry leads to long-run excess profit

7 8w  2&(

Monopolies can be productively inefficient

8帻 9w 2&(

Monopolies are allocatively inefficient

9`0:x7k_(((fJ%|_|YM o`\%^̩diSj9<-;K+G45{K %e MMpKFL^8cxKpKv'bIr4^dvP-hĮK( rḯ>E [OJ(V{o78Dύxs*f_ҽ-;@@c69N#gցh*ݜϧg5`FVͤ4ggӳz10mnggӳz10mFm 0/E$U3i14x F @QVv};<Gfc9E[69NF3Q@` гn@#@ lv};F֣ցj3i1-قH9N#GkQ@`#69N#GkQ@` ݘ14x F QH/KZeZ3i14x F @.Iv};<Gfc&z10mFm 6s;> ݚ|14x F QH/KZk3i14x F @-iͤ4ggӳz10m&볙4x F QHh ϧg5b0`ڌ@#@ lp/KZq3i14x F @Z69N#GkQ@` ^>F֣ցj3i1[c@ lv};<Gf a7>F֣ցj3i1['c@ lv};<Gf d3i14x F @\^sh j=h669 g&4ggӳz10mFm \sh j=h669 j^3i14x F @[c@ lv};<Gf m>F֣ցj3i1[c@ lv};<Gf p>F֣ցj3i1Zg&c ͤ4ggӳz0: i;_C`2&(

PLR

;tJ߀ i<_C`2&(

PLR

< " j=_]`2&(

S=MC

=I*b >g"2&(

Allocative

Efficiency

S = D

>-* i?_C`2&(

PLR

?tJ߀ i@_C`2&(

PLR

 @ " jA_]`2&(

S=MC

!AI*b Bg"2&(

Allocative

Efficiency

S = D

"B-* CȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$C Dw  02(

Perfect Competition: Long-run Behaviour

%D kE_M_`2&(

Price

&E + qFg)/ 2&(

Q in tonnes

'F7 kG_M_`2&(

Price

(GtF qHg'w 2&(

q in tonnes

)H; fIWt 2&(

D

*IYkH iJ_B`2&(

ATC

+J2 gKW 2&(

MC

,K hLW 2&(

qLR

-Ls Mpj* 2&(

Easy entry leads to long-run normal profit

.Mi ~Noa2&(

Pulp Industry or Market

/ND' uOg3 2&(

Individual Firm

0O Pg&7 2&(

Productive

Efficiency

1P Qw 2&(

In the long-run the industry is allocatively efficient

2Q\f Rpj+ 2&(

In the long-run the firm is productively efficient

3R So2(

Monopoly: Long-run Behaviour

4S_ iT_C`2&(

PLR

5TtJ߀ iU_C`2&(

PLR

6U " jV_]`2&(

S=MC

7VI*b Wg"2&(

Allocative

Efficiency

S = D

8W-*9 iX_C`2&(

PLR

:XtJ߀ iY_C`2&(

PLR

;Y " jZ_]`2&(

S=MC

<ZI*b [g"2&(

Allocative

Efficiency

S = D

=[-*> \_[a[2&(

$ per

tonne

?\! g]W 2&(

MC

@] f^Wt 2&(

D

A^8 _o 2&(

Individual Firm = Industry

B_dq j`_]`2&(

MC=S

C` haW{ 2&(

qpc

DaH hbW{ 2&(

Ppc

Eb겪 ucw `2&(

In perfect competition production takes place

to the point where Demand = Supply or P = MC.

This promotes allocative efficiency.

Fc` adg"(2&(

Allocative

Efficiency

D = S

P = MC

GdH'ezaP %x#5YT AHe@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@ !"$%&'()*+,-./012345678:;<=?@ABCDEFGHfx7k_(((#% `FAcĞ<&d! ,Ly ~% ҧvۘCDEt4b4/1lz\b]oJzNDU IsKMX6M~i|v0ĉ;Ӧ \4Ie}i iT-ie1Qkz2+p^|3I ;FKщ\p%l 8K Kѓ$\y(9-9 I.|'?Hb^g/#$hk?ZTZx;?*` ^eؚxv*T.0=.Xxk[B7/F֣ցj3i1[rc@ lv};<Gf i>F֣ցj3i1Zƥ69N#GkQ@` k4ggӳz10mFm \sh j=h669 n4ggӳz10mFm \ sh j=h669 rf0`ڌ@#@ lv};<Gf ig_C`2&(

PLR

gtJ߀ ih_C`2&(

PLR

h " ji_]`2&(

S=MC

iI*b jg"2&(

Allocative

Efficiency

S = D

j-* ik_C`2&(

PLR

ktJ߀ il_C`2&(

PLR

 l " jm_]`2&(

S=MC

!mI*b ng"2&(

Allocative

Efficiency

S = D

"n-* oȀ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

$o pw  02(

Perfect Competition: Long-run Behaviour

%p kq_M_`2&(

Price

&q + qrg)/ 2&(

Q in tonnes

'r7 ks_M_`2&(

Price

(stF qtg'w 2&(

q in tonnes

)t; fuWt 2&(

D

*uYkH iv_B`2&(

ATC

+v2 gwW 2&(

MC

,w hxW 2&(

qLR

-xs ypj* 2&(

Easy entry leads to long-run normal profit

.yi ~zoa2&(

Pulp Industry or Market

/zD' u{g3 2&(

Individual Firm

0{ |g&7 2&(

Productive

Efficiency

1| }w 2&(

In the long-run the industry is allocatively efficient

2}\f ~pj+ 2&(

In the long-run the firm is productively efficient

3~ o2(

Monopoly: Long-run Behaviour

4_ i_C`2&(

PLR

5tJ߀ i_C`2&(

PLR

6 " j_]`2&(

S=MC

7I*b g"2&(

Allocative

Efficiency

S = D

8-* i_C`2&(

PLR

:tJ߀ i_C`2&(

PLR

; " j_]`2&(

S=MC

<I*b g"2&(

Allocative

Efficiency

S = D

=-* _[a[2&(

$ per

tonne

?! gW 2&(

qm

@h j_]`2&(

MC=S

A hW 2&(

MR

B` gW 2&(

Pm

CA fWt 2&(

D

D8 o 2&(

Individual Firm = Industry

Edq hW 2&(

MR

F` hW{ 2&(

qpc

GH hW{ 2&(

Ppc

H겪 w 2&(

In monopoly production takes place where MR = MC.

This means that for the last unit: Price exceeds MC

The monopolist restricts quantity and raises the price.

I`Cyԯ3%_x#!Q-A%Ϯa<U6:K@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@      !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIK? oO2&(

Click here to exit Figure 7

 /o0&(END OF FIGURE 7 >8pn #*(%-%(cd9E(ަ`ZUrgqE= p2Zul*K\ Q9I؀\_ݩ%fs%qn @W%tZX!EK[AҢUEP+XuN$R3B儖veYQ@7᤹`D.BNM Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly

 w  02(

Perfect Competition: Long-run Behaviour

 k_M_`2&(

Price

 + qg)/ 2&(

Q in tonnes

 7 k_M_`2&(

Price

 tF qg'w 2&(

q in tonnes

 ; fWt 2&(

D

 YkH i_B`2&(

ATC

 2 gW 2&(

MC

 hW 2&(

qLR

s pj* 2&(

Easy entry leads to long-run normal profit

i ~oa2&(

Pulp Industry or Market

D' ug3 2&(

Individual Firm

 g&7 2&(

Productive

Efficiency

 w 2&(

In the long-run the industry is allocatively efficient

\f pj+ 2&(

In the long-run the firm is productively efficient

 o2(

Monopoly: Long-run Behaviour

_ pj, 2&(

Barriers to entry leads to long-run excess profit

 w  2&(

Monopolies can be productively inefficient

帻 w 2&(

Monopolies are allocatively inefficient

`x7k_(((#% `FAcĞ<&d! ,*yf#zU ҧvۘCDEt4b4/1lzNDU IsKMX6M~i|ף'0HT EX1t~PƔ ~5 b#M.u8i.ѮГQkz2+p^䶞,Ί\߱dĞ׃\"DgzN+$F֣ցj3i1[rc@ lv};<Gf i>F֣ցj3i1Zƥ69N#GkQ@` k4ggӳz10mFm \sh j=h669 n4ggӳz10mFm \ sh j=h669 rf0`ڌ@#@ lv};<G i_C`2&(

PLR

tJ߀ i_C`2&(

PLR

 " j_]`2&(

S=MC

I*b g"2&(

Allocative

Efficiency

S = D

-* i_C`2&(

PLR

 tJ߀ i_C`2&(

PLR

! " j_]`2&(

S=MC

"I*b g"2&(

Allocative

Efficiency

S = D

#-*$ Ȁ2(

Figure 7: Animated Review: Perfect Competition vs. Monopoly:

% w  02(

Perfect Competition: Long-run Behaviour

& k_M_`2&(

Price

' + qg)/ 2&(

Q in tonnes

(7 k_M_`2&(

Price

)tF qg'w 2&(

q in tonnes

*; fWt 2&(

D

+YkH i_B`2&(

ATC

,2 gW 2&(

MC

- hW 2&(

qLR

.s pj* 2&(

Easy entry leads to long-run normal profit

/i ~oa2&(

Pulp Industry or Market

0D' ug3 2&(

Individual Firm

1 g&7 2&(

Productive

Efficiency

2 w 2&(

In the long-run the industry is allocatively efficient

3\f pj+ 2&(

In the long-run the firm is productively efficient

4 o2(

Monopoly: Long-run Behaviour

5_ i_C`2&(

PLR

6tJ߀ i_C`2&(

PLR

7 " j_]`2&(

S=MC

8I*b g"2&(

Allocative

Efficiency

S = D

9-*: i_C`2&(

PLR

;tJ߀ i_C`2&(

PLR

< " j_]`2&(

S=MC

=I*b g"2&(

Allocative

Efficiency

S = D

>-*? _[a[2&(

$ per

tonne

@! gW 2&(

qm

Ah gW 2&(

MC

B hW 2&(

MR

C` gW 2&(

Pm

DA fWt 2&(

D

E8 o 2&(

Individual Firm = Industry

Fdq j_]`2&(

MC=S

G hW 2&(

MR

H` hW{ 2&(

qpc

IH hW{ 2&(

Ppc

J겪Cyԯ3% w+.k#%֪ 6:S<L@